Topic 8 Financial Statements

Agreed with @Trephena

@Amarain Hi there! References are a bit like court evidence, they should be as accurate and complete as possible. So you should always try to identify the actual author if there is one e.g. if a newspaper article has the journalist's name use that not the name of the newspaper (don't panic everyone if you haven't - I am stating 'best practice'). So in the example you cite 'CEO XYZ, 2014' is best if you are specifically referring to the CEO report. With the FS they are actually prepared by auditors for the company as a whole so using XYZ 2014 is fine - Think about it a lawyer helps a witness to prepare a witness statement but it is still attributed to the witness not the lawyer.

hi again Is it necessary to find out efficiency ratios like payable days, inventory days etc? ratios i am using are as follows gp,np current,quick/acid dividend yield, payout ratio,eps,p/e and d/e and interest coverage are these enough or efficiency ratios should also be there??

@awais - it very much depends on the company. I always recommend scouring the highlights that the directors report each quarter and at year end on the company website as they often include industry specific KPIs and these are what turn a same-old, same-old analysis into a more intelligent and appropriate one. If the trends for payables and receivables are stable then that is about all you need to comment on and compare.

@trephena thanks

I am in big trouble as I selected a company whose year end was June and I chose a competitor whose year end was December. My mentor didn't notice that neither that I. I have just seen that and my project is all most complete.I tried to contact my mentor but he is on a vacation. What should I do? Please guide me I m in big trouble.......

@naveedullahwardak - while this is an inconvenience it isn't the end of the world! Do a search on our forums for Topic 8 Financial Years as I very recently responded to @akonda on the same subject

Thanks for your reply. I have read your response to @akonda but my point is this that I have done ratio analysis according to the annual financial statements. The difference between both these companies is 6 months. What should I do now? Should I add the Comparative financial statements of the two quarter to the june company to bring it to december 2013 or what should I do ? and if I continue without changing anything then what reason should I state??? Your response will be highly appreciated.Thanks!

@ naveedullahwardak - am I missing something here as to me your prob and @akonda's appear to be identical?.... No you don't need to bother with adjusting the accounts and bringing in quarters unless you want to. As long as you are using the very latest full year audited accounts in accordance with the latest info pack for your main company there is no problem. So if the June 2014 statements were in the public domain you have got to use them and the 3 years up to then otherwise it will be an automatic fail. So read the rules as markers seem to police this rule stringently :-(

if we don't use latest financial statements would the examiners fail me?? As i am using 2010-2013 financial statements and 2014 statements are available now but for that i have to change major portions of my analysis and i don't have much time for that to do. Also in my first attempt i used 2009-2012 statements and at that time 2013 statement was available but examiner didn't said a word about that and praised my analysis.

Extract from Information Pack: The programme requirement is that you use the last 3 financial reports that are available, or will be available, at the start of the submission period. If the results are not going to be published in time for you to include them in your report, then you should use the previous 3 year's results. The Programme Director has advised that any Company results that are published (in any form) less than 90 days before the start of submission do not have to be used. Please refer pg. 39 (pg. no mentioned in bottom of page) of Information Pack for further detail. PS: Students must read Information pack as answers of most of their queries already provided there. Thanks.

@hamdi90 - as you failed anyway the marker may have tried to give you some encouragement. But you are playing Russian Roulette if you think they won't notice this time. As Ahmed has pointed out the Info Pack makes it very clear so if you are failed for knowingly submitting old FS then you will only have yourself to blame!

you should mention this "Appendix 1", Appendix 2 ...... You can add multiple files as appendices.

@Nick123 - no probs :-)

Hi Trephena I have seen from the conversations above of someone who is doing M&S with JL as comparator. His problem was the difference in fin year ends. You said there is no problems and doesn't need to use quarterly figures because the fin year ends were close enough. But please look at my situation and help where possible? Am doing T8 on Easyjet (Fin year end is September) with Ryanair (Fin year end is March) as comparator. So I am starting my analysis with 2011 fin years in both companies with easyjet's last year being Sept 2013 (3 yrs) and Ryanair's last year being March 2014 (4 yrs). Is there any problems with this?

@akonda - I thought I answered this above on 25th October? As I have suggested many times elsewhere, students should NOT get locked into trying to look at things year by year - it is the trends in the data that are important (the management do not start out on the first day of each financial year and come up with a new strategy that ends on the last day of the financial year). You should be looking at Easyjet's various strategies (often formulated from the SWOT factors) and how they and the PESTLE impacted and influenced the financial performance and comparing this with Ryanair over (approximately in your case) the same period.

helllo ,i hope all of u r fine. I need some help. Should i give exact reference from annual reports while attempting financial analysis? e.g company A's GP has increased by 7% in comparison to last year(ANNUAL REPORT COMPANY A , 2014, PAGE 20) IS THE ABOVE EXAMPLE A GOOD ONE AND IS IT A "MUST" TO DO or i can do fin,analysis and in the end of the paragraph put in brackets the reference like following "(Source:COMPANY A-Annual Report, 2014) Kindly do reply as soosn as possible/\ Regards

@awais - putting something in brackets at the end of the paragraph is not referencing- referencing is about identifying exactly what is being referenced in the text itself. I think you can assume with figures that the marker has the knowledge to look at the income statement or Balance sheet for actual figures so you don't need page numbers but if you want to, it is not wrong to put them in. Usually if you have referenced your graphs (which you are expected to do) you do not need to repeat the reference in the text for the same figures or the differences between them (note: citing and talking about what is obvious from the graph just wastes words - let the graphs speak for themselves and you use your words to explain). Remember it is WHY the GP has increased by 7% that the marker will be interested in (and they don't want it explained in terms of the cost of sales decreased as that tends to be a statement of the obvious)

thanks @trephena ok tell me about the following example company A's gp moved up due to healthy sales revenue increase of 147% which was due to 157% increase in domestic dispatches and 15% increase in exports. now tell me please, that above example explains why gp is increased or not ?? thanks alot for your timely replies. Regards

@awais21 - yes that is the sort of thing. As these figures will not be apparent from the graph they will need to be referenced e.g. "company A’s gp moved up due to healthy sales revenue increase of 147% which was due to 157% increase in domestic dispatches and 15% increase in exports [insert reference here]. If you can, try to expand on these statements for example 'domestic sales rose because... maybe costs of producing say, cars has fallen - as they are assembled locally enabling some of this saving to be passed on to consumers - economies of scale - better technologies employed compared with competitors (so greater market share) You have to try to get behind the figures as much as possible in your analysis by trying to answer the question "Why was this?" and if poss relating it back to management strategies (which they will have based on SWOT factors) and environmental (PESTLE) factors (stronger currency, increases in disposable income, favourable tax policies, introduction of new technologies etc). So why were domestic sales and exports up?

thanks alot for your help :D @trephena

ok i saw the last line :D, i am doing rap on cement companis ,after some research on internet the local sales were up because highways and overhead bridges are being constructed by govt which causd many local cement comps to savor huge sales and some neighboring countries are going under massive infrastructure development caused the exports to sniff good highs :D

in my brackets when referencing, the year end is either 2011, 2012 or 2013 but the annual reports are prepared the year after year end, if I am referring to the 2011 annual report do I reference as ( annual report company x, 2011) or (annual report company x, 2012) and also in my reference section lets say I have quoted the CEO more than once on the same page do I list these separately or do I list them as one reference???

What is actually the best way to reference annual reports inside the rap and in the reference list?

@denmaster referencing has been covered endlessly on the Forum Harvard Referencing so read through it or use the Forum search facility to look up all referencing queries using a few key words.

@awais21 - yes use the researched reasons you found to support your analysis e.g. you mention highways, so this is a government project possibly so you may be able to link this to political factors - the government investing in infrastructure and/or a company strength of road building projects. This is the sort of thing you need to put in to demonstrate your research and analysis skills (and reference them of course). Markers normally want to know what you have found out for yourself - not what they can read for themselves in the FSs

@Amarain 1. Source under graph is fine. You do not need to repeat figures that are showing in the graphs as it wastes words and the reader can see it for themselves. For more details on referencing please see the Harvard Referencing forum 2. Yes appendices need to show where the Info originated from. 3. You do not have to upload the company FSs if you have the detailed extracts again please see the Forum on Appendix Queries for the finer details

I am thinking of including P/E ratio for my analysis but the problem is that I'm not sure how to find the stock price for previous years like 2012 for example. May I ask how people managed this here or how I should try to calculate this ratio?

@avian will - I am not sure if you can get this from the relevant stock exchange or specialist journals (it may require a subscription) - they should have records of actual average daily prices going back a number of years on listed companies. Some companies do show the average share price at year end in their FS (in may be in the table summary of highlights in the full FS or in the special online quartlerly press release highlights) or tucked away in the section dealing with directors remuneration/ compensation. Otherwise you will just have to review the general trend in profits and share price. PS You may be able to use the 3 year graph that the London stock exchange produces for prices if using a UK listed company but it will be 3 years to current date (and is plotted right to left on the y axis)

Thanks a lot @Trephena Yes I already did that :) took the calculated P/E figures from LSE. I only asked to see if there was a way I can calculate the ratios myself but that's alright...interpretation is what matters at the end of the day. Anyhoo, I wanted to ask you about another issue. I know its minor but accuracy matters so I'm trying to keep things as accurate as possible. 1. For a group's PBIT, is 'share of profits from joint ventures and associates' added to the operating profit? The figure for share of profits JV is small so does not change the ratio calculated with or without it..... but for accuracy in the formulas I'm asking. 2. For interest coverage ratio... do I take just finance costs from IS as interest expense or should I be taking net interest expense (finance income-finance cost)? Thanks a lot for all your valuable feedback...I can't thank you enough :D