Topic 8 Financial Statements

Hi @trephena

I have selected a listed company and their annual report for the year 2014 was published during March 2015. I have used 2011- 13 annual reports, so anything wrong with this?

Thnx in advance

@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?

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

@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.

@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 🙂

@will1982 – Chill! 😀 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. 🙂

@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.

@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)

@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)

@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.

@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/

@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 😀