Topic 8: Financial Statement Problems – Dates, whether they can be compared etc.

@riteshgrg82 – The rules are on p.39 of the Information Pack. If the statements are not available in accordance with the table then you use the latest that were available and in the public domain by 1 Feb 2015

@zee90

For a P30 submission you need to take the 3 statements ended June 2012, 2013 and 2014 (in accordance with p.39 of the OBU Information Pack). You are not expected to use more recent financial statements so do not need to use the half-year report. When discussing EPS it may be relevant to mention in passing if there had been a subsequent profit warning for the half-year however (as EPS is an important investor ratio and profit warnings usually radically affect the share price at the time they are announced).

Also if there was a significant event that might be relevant to the financial statements you have used (such as investigation into financial statement fraud e.g. as has happened at Tesco) then you are expected to mention this – probably the most appropriate place is when discussing the limitations of ratio analysis and possibly again when setting out your conclusions.

@will1982

1. It is entirely up to you if you choose to use the statements of April 2015. It is a case of you will be penalised if you use out of date statements but using more recent than those prescribed on p.39 of the Info Pack is NOT a problem at all.

2. If can’t remember which topic you have chosen but unless it is T 8 which covers a 3 year period it is of no consequence if you use 2015 in preference to 2014 so there is no need to explain anything 🙂

PS Can i ask you a favour – to stop opening a new topic each and every time you have a query and wherever possible use an existing relevant forum? – this is because (a) I find myself having to repeat myself when the same question is asked (b) I am trying to keep everything tidy and have it all in the appropriate place (c) a degree is about researching and finding things out for yourself so a bit of searching on the Forums is good practice and (d) nothing personal just my own idiosyncrasy – being totally honest it annoys me intensely 🙂 !!!

@zeest- this is something you mention in the Limitations Section. You then need to mention it again in the sections that are most affected when you are explaining differences. Where the restated amounts are not material then their effect can be largely ignored.

You should however consider the reason for the restated figures when approaching your analysis and their potential impact overall – how did the stock market and business analysts react? Their comments could be insightful.

@husnafzai – normally I would recommend students include these as the Investor section is normally an important section. However in the circumstances I would focus on how the losses are being dealt with- have retained losses been reduced or are they increasing?; gearing to see if loan capital is being used for long term investment to turn the company round; whether there is an increase in the short term funding and is liquidity a ‘problem’.

The important thing is NOT to view the ratios in isolation – see how the company is planning to recover from the current situation – read the CEO and Directors reports and supplement with articles from the business press wherever possible and take a quick look at how all of this has impacted on the share price.

@jamest -you will see that I have moved your topic to an already existing forum that we have on this topic. I suggest you read the answers above as they probably answer your query (I am actually on holiday right now). It might also depend on the availability of your comparator company FSs too.

If you have further queries on this topic please post here or use our search facility to find the most appropriate topic (and please only open a new topic if absolutely necessary)

(Sun is shining where I am 😀 ! – Trephena)

@fiazhnd – p.39 of the Info Pack refers to the full year’s statements (or at least it is meant to!). There is nothing wrong with making any comments from the interim / quarterly accounts if you really want to as you have them for both companies. Otherwise it is not necessary to refer to them unless something significant has happened in between the year end and then – if there was something like a profits warning it might be appropriate to mention this. More emphasis is usually put on good overall evaluation that really explains what has gone on over the 3 year period so that is what I would advise you should focus on. However in the end it is your choice if you want to continue your comparisons using the very latest quarterly accounts – if you think it will enhance your evaluation then do it, if it does add anything then maybe save yourself the effort 🙂

@Yama – in most of your analysis you should be comparing ratios with ratios so absolute figures in different currencies should not be a a problem. You might mention currencies in the context of currency fluctuations affecting sales demand if this is appropriate or its affect on costs etc

Yes that’s fine no problem at all with that.

The company i have chosen it has discontinued operations in 2015 and year 2014 was restated in order to be comparable. But how can i assess the company’s performance over a 3 year period since year 2013 have not been restated to take into account discontinued operations and how they will be comparable with the another company in the industry. Should i ignore discontinued operations for the year 2014 and 2015?

@jpco – normally this isn’t a problem unless the sales are seasonal so prorating is not necessary. These things are mentioned in the limitations of data section and if appropriate mentioned again in the analysis if it has affected the results.

@savvas – Depending on the what operations were and why they were discontinued is the main factor here. Was this a subsidiary that was sold off? Was it making a loss or was it something outside the normal core business that did not fit in with the company’s strategic portfolio?

You say that 2014 was restated to make it comparable with 2015. In essence these being the most recent years will form the greater part of your work so go with these. So your years 2013-2014 and 2014-2015 have the adjusted figures and you want to know about 2012-2013? This year will be the start of your analysis so use it as it is, as I imagine it would be virtually impossible for you to restate this anyway. However in your Limitations you will need to mention that the figures for 2013-2014 and 2014-2015 have been restated and briefly why and that in your analysis you will try to assess how this may account for some of the differences in your trends subsequent to 2012-2013.

The main thing to understand with T8 is that you are using the figures and ratios to HELP do an evaluation and analysis of how the company has performed over the period (the figures and percentages themselves are merely tools!). The markers want to know what has gone on and in particular they are interested in the strategies the company has taken, so in many respects rather than be a hindrance to you this might actually be an opportunity for you to get behind the figures and see the management rationale. Below is a comment (from some actual marker feedback to a failed student taken from elsewhere on one of the other topic forums) that sums up exactly what is required to pass this topic and explains where the focus in T8 should be. It emphasises that the strategies are very important to producing a good analysis. I am repeating the full paragraph here (although perhaps only part of it is particularly applicable to your case) as so many students lose sight of what T8 is really about and tend to focus on the numbers to the exclusion of the real issues :

“The role of evaluation and analysis in the RAP is to research sufficiently from a variety of sources using trade and industry articles as well as the financial statements so that you can present a balanced view of the company performance. You need to discuss and explain rather than present descriptive statements and you must use supporting references to add validity. Try to link your SWOT /PESTLE factors to the financial analysis and use the CEO /directors reports to see what factors and strategies have impacted on the results and influenced management decisions. Ratios on their own without proper explanations of what has actually driven the changes in the movements is insufficient to pass the evaluation and analysis assessment criteria. Use graphs to show the movements and your words to provide the detailed reasons and factors that lie behind them rather than just describing increases and decreases and making obvious comments about differences between the two companies”

So do not get so hung up on the figures themselves particularly for the earliest year – it is why the decision to discontinue was taken and how the company has performed subsequently that are more important.

(Note: I shall be moving this post to a more appropriate forum topic in a few days as the issue in general goes beyond discontinued operations and therefore affects more students)

Hello,

Please, can anyone share any detailed guidance on how to use weighted average rate for translating income statement to another currency?

Thank you.