Topic 8 Financial Statements

@linia 1. Start Part 3 with the models -the tax thing is a threat and your explanation is fine (although I would probably word it differently as 'uncertainty over governments raising local airport taxes' 2. Don't do this - give proper referenced reasons all the time and cut out all the superfluous stuff about why you chose the topic and the difference between primary and secondary data if you need to save words. 3. You should always try to express things in your own words if you can't you must use quotation marks as well as a reference 4. Probably no need to reference if just a template 5' Either of these in the text (preferably with page number) is acceptable and only one reference in the list (see my Golden Rules artcle on our homepage www.opentuition.com/obu

Thank you for your responses they have been really helpful. Two other question, If I do ratios, is it allowed for me to compare them to analyst reports, likeThompson Reuters and Morningstar. When they request us to look at journal article are they the same as Wall Street Journal? I also had a look at analyst reports, they mainly focus on future forecast and ratios?

Shall I upload the balance sheet and profit and loss of the main company in pdf and of competitors also another one, can I unite them in 1pdf ? Because I have to upload 3 appendices : 1) first -Ratio calculation with FS extracts of both companies 2) second-One pdf with Balance Sheet and Income Statemenst of my chosen company 3) third- second pdf with Balance Sheet and Income Statement of my competitor Furtermore, as Take INc . stat. and balance sheet from the annual report 2015 which is about 300 pages, I think I will print only that pagesof financ. statements, print and then scan as pdf seperately or together of both companies ???????

If you can get them in one file this would be better. You only need the relevant pages (income statements and balance sheets).

Hi, I am currently doing my evaluation and analysis project for topic 8. I am working on Excel with ratios (do the ratios been referenced in the Excel, i mean where i found them) or i can use whatever ratios under lets say profitability, liquidity, capital and efficiency? I used 12 ratios which i developed the graphs from my main company and also for benchmarking! I saw that some ratios that i calculated had different results as from websites as FT and morningstar, is it going to have any effect that? Roce i used= earnings before interest and tax/total assets - current liabilities! Also, every graph which i will include in my project need to say below eg. Profitability Ratios (Appendix 1)? Thank you, i hope you understand what i mean!

Sorry but your query is not very clear so I am having difficulty in understanding the main issues here.... If your ratios,are different from published ratios then mention this in the limitations section. Sometimes the differences are only minor and therefore not really significant. Do your calculations in the Excel spreadsheet and load it as,an appendix on submission. Reference the figures you use to either the original source or your appendix Excel worksheet.

Dear Trephena, Can you please refer me to the post where there is discussion about companies Using GAAP rather than ifrs and how different the approach will be for using FS prepared as per GAAP. Thanks

I don't recall a specific post. However where this may affect comparisons it can be dealt with through setting out the problem in the limitations section and discussing it subsequently in the analysis if the results may have been skewed by the different treatments adopted by the two companies.

The companies i have selected are A the main company and B is the competitor, A is operating locally and its FS are prepared in GAAP ,whereas B is operating in other countries hence it has prepared FS using GAAP as well IFRS. Like A and B are both having FS in GAAP. So do you think there is going to be any difference in comparison or affect my rap if i am using FS prepared as per GAAP rather than taking those companies using IFRS. And should i select companies using IFRS to prepare FS? And thanks alot for your previous reply.

Then use GAAP for both. I really can't say if there will be significant differences. Can't you download the figures for B for both GAAP and IFRS, look at them side by side if possible and see for yourself? The most important thing usually is to compare like with like as much as possible I.e. company with company or group with group otherwise there will be major distortions if one is company level and the other is group level.

I can do that For company B.But still at the end i will have to use GAAP right. But will this affect my analysis,fr eg if i were using FS for both prepared under IFRS Compared to GAAP. I think Analysis will not be affected , and will i need to write it in limitations that the company is using GAAP instead of IFRS,besides do i need knowledge of the Accounting standards for Preparing the RAP.

I am writing a research on topic 8 and I am studying telecommunication companies in Malawi. I have managed to download the financial statement for the local company which is listed company. Now, I am struggling to find the comparator. I have decided to download the financial statements on a mobile company is south Africa. Now here are my question: Is it acceptable to use a multinational company as a comparator? If so, how do you conduct the analysis and evaluation because some of the subsidiaries might be operating from different environment? Please help!!!!

Hi all, I'm studying GSK for Topic 8 and is already knee deep into it, but I just realized that other competitors has it's FS in mostly USD, while only GSK is stated in £. While my mentor suggested to use the US translation provided by GSK, I noticed that the increase in average USD exchange rate skewed up the results. E.g: Increase in Revenue became decrease after translation. Any advice on how to tackle this issue? Should I continue using the USD translation results or should I just use £ as per Annual report? If latter, how should I then compare it with the competitor? **Edit: I did use different currencies before this, but found it confusing when doing P/E & Dividend Yield. If one is based on LSE and another NYSE, won't these ratios be somewhat not comparable? Sorry if I repeated a question, I can't seem to find any answers from the previous posts.

Both GSK and competitor AZN trading mainly on LSE. So it should not be an issue after all, right? Should I translate AZN's report using their given average exchange rate for ease of comparison?

Why do you think you need to translate currencies? Ratios obviate the need to. GP % is the GP % - it is a formula that is applied in the company's operating currency and therefore companies using different currencies can still be compared without introducing an artificial exchange rate.

@walid0 said: I can do that For company B.But still at the end i will have to use GAAP right. But will this affect my analysis,fr eg if i were using FS for both prepared under IFRS Compared to GAAP. I think Analysis will not be affected , and will i need to write it in limitations that the company is using GAAP instead of IFRS,besides do i need knowledge of the Accounting standards for Preparing the RAP.

@trephena can you please answer this last question.

My main concern is that you are fixating on this at the expense of broader more important issues. No two sets of company accounts are ever going to have treated items identically, policies differ, the bases for the way the overall figures are put together will also differ so you have to make the best of what you have. So go with one method that will make the figures as comparable as possible and state the limitations - then move on! Of far greater importance in passing the RAP is to understand the overall business environment that the company is operating in and not just routinely apply the models. Consider how the factors within the models have influenced and shaped management strategic decisions and how these decisions have impacted on the financial results you see in the accounts (for this reason SWOT and PEST(LE) are usually the best models to use). Try to get 'behind' the figures and policies. This will make for a much stronger evaluation than getting into all the detail of figures and percentages on their own. More and more markers are expecting a 'contextual analysis' - that is they want to see that students have thought about the figures in relation to the industry sector it is operating in and appreciated that business success is all about implementing the right strategies at the right time. So my advice is to do your application of models before you do any in depth analysis of ratios and try to piece the strategies together by reading the CEO/chairman/ directors' reports for the year before your period of review as well as the subsequent years. Then try to trace the plans and decisions the management make over the period by looking at the trends (remember depending on the strategy there could be time lag of a year or so). In the end this will be deemed of much greater worth in terms of analysis than getting bogged down in the breakdown of figures within figures.

I am working on topic 8, while dealing with financial statements figures , I m bit confused. E.g annual reports for 2015 give the data of '2015 and 2014' , and annual reports for 2014 give the figures of '2014 and 2013' . and so on..... my question is the figures are slightly different for 2014 in the annual reports of 2015 and 2014 so which figures are to be taken as 2014 for the ratio analysis? Hopefully I have conveyed what I wanted to ask? GlaxoSmithKline Pakistan is the company and while working on their annual accounts it gives Annual reports 2015 (b/s and pnl) for 2015 and 2014 , Annual reports 2014 (b/s and pnl) for 2014 and 2013 , Annual reports 2013 (b/s and pnl ) 2013 and 2012 and so on ........ now figures for 2014 , 2013 and 2012 are repeating and slightly different from each year. Which figures for 2014 would be taken for ratio analysis?The fresh figures with the notes to the financial statements I.e Annual reports 2014 (b/s and pnl) 2014 & 2013? Or the figures with the comparison to the following year I.e Annual reports 2015 (b/s and pnl) 2015 & 2014?

Normally you would use the latest figures available, so for 2014 it would be those appearing in the 2015 annual report. There should be a note somewhere telling you why they are restated. It is important you find out why they are restated as this may affect your analysis. It may relate for example to discontinued operations or restructuring. Examine which figures have been particularly affected as you may need to discuss these variances (not the figures themselves so much but what has caused the variance) when explaining performance. I would suggest that before commencing the financial analysis you read all the CEO/ chairman / directors reports going back to the 2012 report (i.e. the year before your actual evaluation starts) and note the key policies, strategies and plans that may have been outlined. This should help you when doing both your models (business analysis) and then when doing your financial analysis you may understand the reasons that lie behind the trends and be able to explain them better. It is always best to do the business analysis first as the factors identified from from these will help you understand the financial results with better clarity

Where can I find the audited financial statements of a company ?Is it on company website?

Yes most companies have the financial statements on their websites often in the investor Relations section. You may also find that there is additional information there that might be helpful sometimes -highlighted results for different periods and presentations (and the interim accounts)

good afternoon, I want to ask about the graphs in Excel document. After doing the ratios and creating the graphs for the main company and for comparison reasons with the competitor company, I need to include them in my RAP as i know. My question is that when i upload my graphs as images in the Word document they are blurry and also small. When i want to make them bigger its not enough space to include them. But when i copy and paste them from Excel to Word is way better. Can i do it like that, copy and paste them from Excel or there is another way to do it? Thank you

The marker/moderator comment 'please ensure you use the latest financial statements' is a general reminder (it may therefore not be applicable in your case). Some students rely totally on what a mentor says whereas they need to look at the latest information pack to check the rules. Anna is usually reliable so what she has said probably reflects the Information Pack -but this is not always the case with all mentors.

@Pete28 if the graphs work better from Word do it that way. As long as you upload the original Excel file with your submission there should be no problem.

Hi everyone! Didn't find any info on this in the forum - in Information pack on page 45 there is a specific comment on ration analysis # 1 - "There remains an underlying lack of appreiation of the interdependence of ratios and the benefits of a pyramidal form of analysis." Who knows what is a pyramidal form of analysis and where i can find info on it? thank you!

@ Trephena In my RAP, I used so many graphs, 11 graphs. There are a lot of numbers displayed in it, mainly in the Y axis. My question is, do these numbers are also counted by the examiner ?? Because if I counted all the words, including the numbers in the graph, the total is around 7,700 words, exceed the limit.

No the markers have got better things to do (and no time besides) to count all the figures. However if you have pasted in tables and charts as images that the word count doesn't pick up they might estimate the number of words in those

@ Trephena, Thank you very much for your reply, May I ask one question again, I used the references (journals / websites) mainly from my local language. Is it still acceptable ? Because it is very hard to find the references regarding my company's situation in English language, the majority of them are using my local language.

@erathan said: @ Trephena, Thank you very much for your reply, May I ask one question again, I used the references (journals / websites) mainly from my local language. Is it still acceptable ? Because it is very hard to find the references regarding my company's situation in English language, the majority of them are using my local language.

Markers are english speaking, so references in other languages won't work.