Topic 8 Financial Statements

@hussainsabt92 - In principle no, but read the above answer to @will1982

@trephena Thanks a lot for your help! I really appreciate that. The feedback I received from the marker said that "I can not establish whether your project is heavily dependent on the annual report of the company as you simply have not provided enough company specific references within your report". Last time I just attached the financial statements of 2011, 2012, 2013 as appendix rather than the whole contents of the annual reports 2011, 2012, 2013. Do you think I have to substitute financial statements with annual reports of the company?

@will1982 - I think I recall from the full feedback that you posted previously that you mainly failed on referencing i.e. even though you failed several sections the root cause was referencing. I suspect the marker found lots of facts/ statements or "sweeping comments" that were not supported by references. In academic work you cannot just state something as a fact without supplying evidence to support it - this is why referencing is important - both as a protocol and to show where the original idea came from. Possibly you also cited without quotation marks - again this is something to avoid as it does not demonstrate any understanding and all it shows is that the student has ability in copying & pasting and can edit. You need to distil the work of others down into key points and express them in your own words and ALSO put in a reference immediately after the point being raised to identify it there and then in the text. The marker comment above relates to referencing and also to balance - a student must demonstrate that they have used a broad range of sources not just the FS - otherwise it is very one-sided. Clearly without adequate referencing your marker from what s/he has written couldn't see where your info was coming from. No you do not try to load the whole of the annual report - there are system limits and you will not be able to do this anyway. They only want extracts of the financial statements and you refer to the CEO statement etc by page number (it is then like any other document, the marker can choose to use the reference information you supply to find the relevant document - this being the case ensure you give them appropriate details and /or link in the reference list)

Hi trephena I have finished my project but have a confusion regarding word count. OBU guide states that I have to count words in charts , pictures etc. My mentor told me to declare words that are shown by MS word, but MS word doesn't count words in charts or images...do i need to count them manually and add them back with the amount of words shown in MS word? Do I also need to count numerical figure(eg- "20000" as one word in my chart as they count as a word in MS word) Thanks....for ur help in advance

Dear Trephena, I have got pretty much the same question as @will1982. However the UK co. I am writing about, 3UK is a part of 3 Europe and Asia which makes up Telecommunications unit of the parent which is foreign Sub- HWL. Now 3 UKs co. accounts aren't due till September 2015; however HWL released their annual report consolidated FS on 27 Feb 2015 (Auditor sign date). The information in the report about 3 Uk's accounts is very limited, so I was wondering if it's worth it to include that info in my RAP or just use 2011-2013? However, I am still using latest info from FT and other sources to reinforce my analysis and evaluation. Any Feedback would be much appreciated. Thanks, Chy

@Chiwdhury - You seem to have grasped the main "issues" here so you are right to bring in some of the current factors and consider the dynamism of the environment in your business analysis (as you are proposing to do) e.g. that the world of mobile telephony moves on fairly quickly: the introduction of the iphone last autumn was a significant event that would have impacted on results, there is continuing fierce competition between operating companies (as the market becomes saturated the only way of getting new business is to try to 'steal' customers from another operator). By ensuring that it reflects current trends even if your financial analysis is reliant on 2011 to 2013 financial statements, you will be showing that you have covered your subject as best you can. You should nevertheless mention the limitation of having to work with old statements in your Limitations section and why you decided not to use just 3UK as your subject company.

Dear Concern: I submitted my my RAP in previous period but failed due to FIVE FORCES Analysis. Now I applied PEST Analysis rather than Five Forces. I want want to know that examiner will be accept that change ?.

@Mohsin - Personally I think a PEST Analysis is much more suited to T8 than a Porters 5Fs so in my opinion this probably was a good move. It is how well you have applied your models and the quality of the evaluation that the markers will be more interested in. Stop worrying about this now as there is nothing you can do anyway and chill :-)

@trephena said: @will1982 - I think I recall from the full feedback that you posted previously that you mainly failed on referencing i.e. even though you failed several sections the root cause was referencing. I suspect the marker found lots of facts/ statements or "sweeping comments" that were not supported by references. In academic work you cannot just state something as a fact without supplying evidence to support it - this is why referencing is important - both as a protocol and to show where the original idea came from. Possibly you also cited without quotation marks - again this is something to avoid as it does not demonstrate any understanding and all it shows is that the student has ability in copying & pasting and can edit. You need to distil the work of others down into key points and express them in your own words and ALSO put in a reference immediately after the point being raised to identify it there and then in the text. The marker comment above relates to referencing and also to balance - a student must demonstrate that they have used a broad range of sources not just the FS - otherwise it is very one-sided. Clearly without adequate referencing your marker from what s/he has written couldn't see where your info was coming from. No you do not try to load the whole of the annual report - there are system limits and you will not be able to do this anyway. They only want extracts of the financial statements and you refer to the CEO statement etc by page number (it is then like any other document, the marker can choose to use the reference information you supply to find the relevant document - this being the case ensure you give them appropriate details and /or link in the reference list)

@trephena Thanks a lot for your help last time! I mainly failed on referencing at my first attempt and I have resubmitted my RAP within the Period 30 (second trial). I'm baffled these days and worried about if I will get failed. I did not renew the financial statements used and rework all my figures because the updated annual financial statements of the company (annual report 2014) were signed off by the auditors on 18 March 2015 and the updated annual report was presented on its website on 9 April 2015.

@will1982 - Chill! :-D The rules for dates of the latest financial statements are on p.39 of the Info Pack and anything released after 1 Feb 2015 was not mandatory for P30 (although students will never be penalised for using the recent statements released after that date). So in effect you used 2013? Occasionally markers inadvertently fail students for old statements and this should usually be picked up by the moderator who checks the fails (ALL fails are reviewed by a moderator). If this was the ONLY reason for failure and in the unlikely event that the moderator were to confirm the fail then this would form valid grounds for an appeal and in normal circumstances would result in a successful one... (obviously if there are other stated reasons for failure they would normally still stand and the appeal probably dismissed). Relating this to your work there was a secondary issue of balance - they wanted to see evidence of some sources as well as just the financial statements. Provided you included these and referenced well you should stop worrying and wait for the results to be released on 23rd Sept. :-)

@trephena i'm writing on T8 for nov submission and i have chosen sainsbury as the main company but not quite sure of the comparator i would have settle for tesco but because of the scandal with the overstatement of f/s, so i'm looking at using Mark&spencer as closest rival or comparator but my concern is the clothing segment for m&s is this appropriate as sainsbury does not have any clothing line at the moment? thanks in advance for your insightful opinion.

@abolorelegacy - well the good news is Sainsbury's do a clothing range called 'Tu'. M & S clothing however is a more significant part of their core business than it is at Sainbury's (but they both have an established banking arm). However this should not stop you as this are something to mention in the Limitations. Another possibility for a comparator for either of these would be Waitrose but it does not have a bank. (You will never get an exact match!) For example online shopping with home delivery is a significant part of the grocery trade now - I don't think M & S offer this for food but they have the 'Simply Food' operation whereby customers can get essentials and popular readymade pre- prepared lines at petrol garages and major railway stations on their way home from work. Other supermarkets don't have this but Waitrose has some outlets at Motorway service stations.

@trephena thanks for your swift response, so in a nutshell i should stick with M & S? and i'm wondering if one comapny is sufficient as a comparator or 2 company will be ok? best regards!

@abolorelegacy - Personally I think it is better to do a good comparison with one company rather than superficially comparing with 2 other companies. I think you should be able to do a reasonable analysis of Sainsbury's with M & S. Before you go about calculating ratios I suggest that you read the CEO and Directors reports and perhaps look at any of the highlights and presentations that the companies may have on their websites (Investor Relations section). That way you will gain a lot of insight into their policies, priorities and strategies and also probably discover some of their KPIs. These can be useful when doing the financial analysis. The good thing about starting your work now is that you have allowed yourself plenty of time to do thorough research. The best RAPs do a financial analysis that is more tailored to the actual business rather then routinely going through every ratio whether it is relevant or not (Turnover per sq.ft or per ft of shelf space and sales per employee are used in retailing to indicate efficiency for example). For your business analysis you might be able to include a brief section on their Christmas advertising campaigns and how successful they were (if you research well you might find the sales figures for the Christmas periods - the busiest in the food retailing calendar). If you can find some figures for the various business segments (food, clothing and banking) this breakdown would also be useful when making comparisons. This sort of approach is what will tend to get the higher grades. PS you will be able to bring in the factors such as on-line home delivery in your SWOT/PEST (as well as looking at the strategic advantage of M & S having outlets at stations etc as quality pre-prepared meals have increasing market demand)

@trephena thank you so much for this piece of info, it was indeed an eye opener.

@abolorelegacy - The other thing you should do both to demonstrate a use of a range of sources and to ensure that you give depth to your work is ensure that you include articles from the business press. I suggest that you look at the Telegraph and BBC business news pages when you are doing your analysis for up-to-date information and to help with your evaluation commentary. https://www.telegraph.co.uk/finance/newsbysector/ and there was this recently about M & S: https://www.bbc.co.uk/news/business-33422014 The UK Government has proposed changes on both Sunday trading hours and the "Living Wage" will impact on both companies. These are 'hot' topics and the business press will be discussing them no doubt in the coming months so are worth following up in a month or two (again something for the business analysis SWOT/PESTLE)

@trephena I have chosen topic 8 and have decided to go with the banking industry as the information is readily available and its local. One of the banks I have chosen have a consolidated financial statement (2 subsidiaries) while the other has a standard Financial statements. I read one of your replies on how its better to choose like statements and consolidated ones are broader. Will it be alright if I chose another bank with a consolidated statement but with a higher number of subsidiaries and diverse operations?

@lit234 - you will rarely get a perfect match! If the subsidiaries are other financial businesses then it shouldn't be a major problem (as they would share a similar business environment) to use that bank and refer to the difference in group structure in your limitations or if it is relevant when you are doing the analysis. It is more of a problem if the subsidiaries are in totally different business sectors as then when looking at group revenue /profits and comparing it with the other company you are not really comparing like with like. It may be relevant then to comment on how much the subsidiaries contribute to the group revenues / profit but just briefly - don't overload the marker with numbers - a nice bar chart or pie chart showing the breakdown would be better.

@trephena Initially I chose two banks, one of it has no subsidiaries. The other has two like I said but both the subsidiaries are related to the business- Credit card and finance advisory. Can I compare the two? If so which would be wiser to choose and if not, as you said I will have to look up a bank that has subsidiaries with a similar business. Thank you for replying, I really appreciate the help.

@lit234 - yes that should be fine, just set out anything in their structures that may have affected the comparisons in your Limitations section. You will need to apply the CAMELS model in your analysis if using a bank. See also our specific forum topic on using a bank for T8 https://opentuition.com/topic/please-help-liquidity-ratios-for-banking-industry/

Dear Trephena, I try to submit my RAP 2016 May, so I have picked Telecommunication industry. But many ratios cannot work for a Mobile company, do you have any suggestions how to substitute the inventory and COGS related ratios and where to put the focus during the analyses? I also do not intend to analyze Statement of Changes in Equity, what do think about this?

@Bolage- I think the change introduced by OBU will be challenging but I have always tried to recommend that students do not take a rote approach to Topic 8 as this topic should be viewed in the context of the industry. For service industries inventory tends to be an irrelevance (as I have pointed out many times on the Forum) and fortunately you have already realised. I suggest that you go on your company websites and look at their Investor Relations section and read all the company press statements etc on there. Look to see what KPIs the companies themselves use. There is nothing wrong with using the company computed ratios (provided you acknowledge this fact). Evaluation is about using a range of sources -NOT just ratios from the annual accounts so look at the business pages from the press and really read the CEO and DIrectors reports as they often reveal the strategies they plan to adopt. To be honest I have not looked in detail at exactly what the definition is in relation to Telecommunications (i.e. whether it is providers of the equipment or the service providers, or both) - but the Learning Luminarium have produced some explanation of this on the Forum topic that deals with the new rules. I did work in Telecomms a few years back (the company was a service industry as opposed to producing handsets) and customer churn was a major KPI. New customer sign up was a feature but obviously this needed to be balanced by customer retentions as the initial cost of new customers (connection costs, credit checks, supplying them with equipment, promotional incentives [discounted rates, cashback] etc) needed to be recouped and major profit was made from the longer term 'loyal' customers. Many of the costs related to the high cost of infrastructure and the depreciation of this. Advertising and promotional costs are usually significant too if it is highly competitive. You have plenty of time to plan a good piece of work so I suggest that you spend time 'getting to know your industry' and look at several companies' websites to get a real feel for the industry. Bear in mind that a text book approach is never going to get you an A grade so welcome the opportunity to think outside the box and recognise the fact that you have the time to really understand the company and its environment. Provided you approach it in a 'holistic' way and focus on aspects that the company itself on their website indicate are important in your ratio analysis then you will be on the right lines to produce a relevant and interesting RAP. As for Statement of Changes in Equity - unless there has been something major in this area or you want your marker to die of boredom it sounds like the sort of thing that is as 'dry as dust' so leave it well alone!!! Good luck :-D

Dear Trephena, thank you very much for you prompt and detailed reply, it is really extremely useful. I have also checked the Learning Luminarium matterial, which is also a big help for us students. I try my best to do something different than the text book approach, which will be challenging, but is good to know that there is a place where we can find some help and guidance. Thank you again! According to my observation the Mentor should be the one who takes this role, but Mentors are "commercialized", at least here in asia (focusing more on there fee than their fee).

This is a perennial problem that has been discussed from every angle at sometime on our forum. Interestingly when the RAP started OBU envisaged that mentors would be friends or colleagues who held managerial positions or college tutors who would offer general advice on research skills and report writing and carry out the role for free. Over time it seems students expected more and more from mentors and somewhere along the line someone saw a money-making opportunity - enter the paid mentor! In some respects using a commercialised mentor should be no different from paying any professional for their services (no one expects accountants/ lawyers/ architects or dentists to work for nothing do they?) - provided of course they are professional and capable. Unfortunately therein lies the problem - too many individuals in certain parts of the world who have little or no practical knowledge of what the RAP entails (beyond what they themselves submitted a few tears back and more than likely for which they got a C grade at the 3rd attempt) have jumped on the band wagon. Then there are those who have introduced a production line procedure where students are channelled into producing a rote piece of work usually for Topic 8 on a company the mentor has preselected. Outside of those stereotypes of 'cowboy' mentors there do exist some good mentors but they tend to be few and far between and personal recommendation therefore remains the best way to find one. The only real solution to the mentor problem would be if OBU used its own staff as mentors. However that is unlikely in the near future so unfortunately as you observe, you are at the mercy of paying someone and hoping they deliver good guidance. At Open Tuition we try with our forums and articles on our homepage to fill the 'mentor gap' and have helped many students achieve success in spite of poor mentorship! .

greetings everyone, please the company i want to study is called Millicom Ghana in the telecom industry and with their financial statements what i had online was the consolidated one for the Millicom world wide. i went forward to the head office of the local company in my country, Ghana but thy refused to give me their local financial statements and annual reports on the basis of confidentiality and keen competition in the industry- the same applies the other company in the industry please i want to know if i can do T8 with consolidated financial statements of this company and the comparator considering the time i have, and the wide business factors affecting the companies in the group. if its possible how should i go about it

greetings everyone, please the company i want to study is called Millicom Ghana in the telecom industry and with respect to their financial statements what i had online was the consolidated one for Millicom world wide. i went forward to the head office of the local company in my country, Ghana but they refused to give me their local financial statements and annual reports because of the issues surrounding confidentiality and keen competition in the industry- the same applies to the other company in the industry please i want to know if i can do T8 with consolidated financial statements of this company and the comparator considering the time i have, and the wide business factors affecting the companies in the group. if its possible how should i go about it? please somebody help me thank you

@Emmanuel Yes, you can do analysis on consolidated financial statements and consolidated statements of the competitor. You have enough time from now to work on consolidated financials but ensure that you cover impact of each business on movement in numbers & trend in ratios. Also in both business & financial analysis, you must analyse how each business or subsidiary is doing in overall increase/decrease and adding value to group. There will be 2 sub areas you need to focus while giving reason for movement in ratios/numbers and business analysis: 1 - What impact the subsidiary, associates are having on profit/loss etc? - At Subsidiary level Or may be you analyse region-wise, country-wise depending on company such as McDonals 2 - How core product(s) of group are doing or effecting. - Product or Basic Level, as you analyse for standalone financial statements. Rest there is no much difference in the way you analyse, in standalone, you focus on company, in consolidated you are focusing on group. Regards, Hammad Ahmed Qureshi

@Emmanuel Yes, you can do analysis on consolidated financial statements and consolidated statements of the competitor. You have enough time from now to work on consolidated financials but ensure that you cover impact of each business on movement in numbers & trend in ratios. Also in both business & financial analysis, you must analyse how each business or subsidiary is doing in overall increase/decrease and adding value to group. There will be 2 sub areas you need to focus while giving reason for movement in ratios/numbers and business analysis: 1 – What impact the subsidiary, associates are having on profit/loss etc? – At Subsidiary level Or may be you analyse region-wise, country-wise depending on company such as McDonals 2 – How core product(s) of group are doing or effecting. – Product or Basic Level, as you analyse for standalone financial statements. Rest there is no much difference in the way you analyse, in standalone, you focus on company, in consolidated you are focusing on group. Regards, Hammad Ahmed Qureshi

thanks Hammad Ahmed Qureshi if i am understanding you rightly, you mean i should look at the movements in trend and ratios of each firm of the group in each country- in doing this i would need the financial statements of these firm in each country before i can understand the movements in trends and ratios; and that is what i cant find i only found the consolidated financial statements thank you

@Emmanuel Yes, you are right but you need to ensure that you cover movements as follows which have material effects on numbers: 1. Movement in each region/segment/subsidiary of business. 2. Movement due to products, loans, payments, receipts etc. You don't need standalone accounts of all companies, you may have breakup in their notes to accounts of IFRS 8 Operating Segments. Please read whole annual report/financial statements including notes. See this example: If sales of car manufacturing company rose by 10% then reason for movement in consolidated accounts may be: - there is increase in sales of 75% in area A company. Further, new sports car AXZ also helped group in improving sales. Regards, Hammad Ahmed Qureshi.