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

Thanks ma I get it now God bless u . u are great now I can breath thanks

Hello Trephena,

My main company a large bank is listed on the local stock exchange while the comparator i chose also a large bank and my main companys biggest competitor is not listed on the local stock exchange. Is this going to be a big problem in comparing the two. other banks listed on the local stock exchange are very small and cannot be reasonably compared with my main company.

kindly help with this.

Thanks in advance

If the main company has a May year end, use June 2012 – May 2015. Not so sure it really is necessary or really going to work for the comparator but 7/12 of one income statement and 5/12 of the next for the comparator from 2012 onwards . ( So for 2015 you would need to use 5/6 of the half year unaudited).You can do the prorating on a spreadsheet. For thebalance sheet the easiest thing is to take the latest half year unaudited balance sheet for 2015 and the 2013 &2014 Year end balance sheets. And you will need to explain what you have done and why.

(All a a bit dreadfully messy and I am not convinced of its overall worth as a good application of the SWOT and PEST and linking the business analysis to the financial performance are of far greater importance in getting a pass grade. But it’s your RAP so your choice in deciding what to do).

Mr Scholefield is a senior and respected Administrator on the OBU RAP programme. However at the same time my moderator contact has told me that as long as the latest financial statements in this case those for YE May 2015 were used, they would accept the comparator statements for Dec 2014 provided the businesses were not seasonal . They would expect some mention of the date difference along with any other factors that might explain differences in the statements themselves (possibly different treatments like depreciation policies foe example) to be set out in the Limitations Section

For graphs it would be possible to show trend lines from June 2012 to May 2015 and for Jan 2012 to Dec 2014 on the same graph with a different colour line for each company as it is usually the trends in the data (year on year increases) and therefore the steepness of the curve that are important and the reasons lying behind these trends that need to be discussed in the evaluation.

Thanks ma again for answering my question however they latest information is not available which is 2015 because main company just published its account but comparator company account is not out yet so that leaves me with using 2014 statement.
Since I will be using 2014 statement I think is appropriate to porate ma.
Thanks ma

dorothyk the problem is not the unlisted/ listed issue but the availability of the Information both for you to work with and to provide to the marker (the logistics of providing it). How do you propose to acquire the unlisted company financial statements? You MUST be able to do a decent comparison so you need good data sources for this and the marker will in the absence of being able to go to the unlisted company investor relations website need detailed financial statements.

If using these companies you would only be able to discuss the EPS and share price for the main company so you would need to explain this in both your limitations section and in the investor ratio section.

Hi everyone,

I also have a quick question in relation to my resubmission for period 31. The reason for not passing mentioned in the mark sheet was mainly lack of referencing.

The comparator company has a year-end different to the main company. The 2015 annual report as at 30 June 2015 is available for the comparator. However, the year-end of main company is December and only the half yearly unaudited accounts are available as at 30 June 2015.

In this situation which of the following option is acceptable to OBU:

Option 1: To ignore these financial statements and do not change the analysis which I have already performed in my Thesis, i.e., December 2014 Annual Report of main Company and June 2014 Annual Report of comparator. However, only insert an explanation in the limitation of information gathering section in the RAP and focus on the referencing only.

Option 2: To use the June 2015 annual report of comparator against the December 2014 annual report of main company and insert an explanation in the limitation of information gathering section in the RAP.

Option 3: To use the June 2015 annual report of comparator against the half yearly unaudited accounts of main company as at 30 June 2015. However, it will lead to increased complexity as six months financial statements of main company will not be comparable to competitor.

Do I have to change the whole analysis?

Your suggestions are highly appreciated.

Hi there @twinkle7

I suggest you go with Option 2 and explain well both in the limitations section and the analysis about your choice. If you only failed on Referencing see my article on this (all 3 parts) and also the Evaluation & Analysis article (all on our homepage http://www.opentuition.com/obu )

The Learning Luminarium tutors have also produced an excellent article on why students fail which is well worth reading.

https://learningluminarium.com/2015/07/03/5-main-reasons-failure/

Read and apply all of this sound advice and also read The Resubmission statement – why a good one is your key to success (also on the homepage) and you will be well on the way to succeeding next time 🙂

@rebecca2 – it is a similar case to the ones above. Always go with the latest for the main company and the nearest most appropriate for the comparator. Personally I would go with the latest of both companies. You can usually construct the bar charts so that the labels under the columns show the dates and with line graphs you could offset them on the x axis (it is the trend and slope of the lines that are the important things).

Remember the comparator is there to put your main company in a business context and anything that would affect the validity of this comparison needs to be explained. Normally the six month gap is not a major problem unless the businesses are seasonal or something material has happened in the business environment of just one of them e.g. the FTSE was just steadily rising between Sep 2014 and Mar 2015 so not a problem if you are using UK companies and making comparisons during this period. However it has fallen considerably since so the PE ratio for the main company in Sep 2015 could not be fairly compared with the comparator’s in Mar 2015.

Dear trephena, im re submitting my research for november submission . my problem is, my main company s year end is june 2015 where as my comperator is september. I will use the most recent for my company that is 3 years to june 2015. Whats the best option for my comperator can i use 3 years to september 2014 ?

@rebecca2 – if there is a problem with putting both companies on the same graph you may be able to insert them so that they are side by side or underneath each other. It is important that you label graphs correctly and that includes ensuring that the currency and / or units are correct.

It is important too that you analyse your comparator in the same section as the main company rather than going through all the ratios for the main company and then doing them for the comparator in a separate section.

I have chosen a company with year end 31 Dec. While the comparator has year end of 30 Sep. I want to know if I would be able to compare these two companies for T8 effectively. When will annual report 2015 will be available for the company with year end 30 Sep.

PS: Both are UK based companies with Euro as reporting currency.?

Any response would be highly appreciated.

@trephena – thank you for the advice above. Regarding graphs, do you suggest having one for the main company and then another for the comparison between main company and competitor? Due to word constraints and fear of repetition, I am leaning towards only having the one comparative graph?

Also, for T8 do you have to include any work on cash flows? For example, I have used dividends paid from the cash flows but have not analysed anything from the cash flow specifically, e.g increase over the three year period in financing activities is due to.. etc