Topic 8 Period 35 onwards

thank you, would apportion as you advised

Probably. I think it is always going to be difficult to find a perfect match within the same country as companies tend to have slightly different products to appeal to a different market as this is easier than competing head-to -head in the same market with another established company. So go for it and bring out the differences in their products and operations in the Limitations section and in your analysis and evaluation

Hi,

Can I compare marriott international(the group) vs hilton worldwide(the group)?and will I be able to get sufficient data for hotels?I’m worried that the hotels industry might not have sufficient research material available.

Best Regards.

can i choose 2 food companies for topic 8 food sector with 90% same brands but huge difference in size e.g one company has 7bn of total assets and other company has 1.5bn of total assets..

Trephena,

I am facing some issues if you could kindly help me with them.

1)Where can i find a detailed breakdown of the figures found in the the financial statements of the annual report.

2) The figure of cost reimbursement is being shown in the FS of marriott and this figure has been added in revenue and then the same is deducted as cost too.I’m not sure how to interpret this as this figure makes up 90% of the cost and revenue.
Cost Reimbursements: We recognize cost reimbursements from managed, franchised, and licensed properties when we incur the related reimbursable costs. These costs primarily consist of payroll and related expenses at managed properties where we are the employer and also include certain operational and administrative costs as provided for in our contracts with the owners. As these costs have no added markup, the revenue and related expense have no impact on either our operating or net income.

3) Also should i base my RAP on the US sector or the whole group and if i base it on the US sector alone so should I include the the whole group figures or just the US sector .The annual report contains figures of the whole marriott group.

Best Regards.

@aynskyfighter -yes these would make good companies to compare as they both produce commercial airliners and compete head to head. ( Don’t worry about the currencies being different as ratios obviate the need to translate currencies )

@nzeadall -apologies for the delay in responding

1. Just the usual mention of this in limitations for both of these factors .possibly also in places the size will have effected results e.g. economies of scale and larger companies can often dictate more favourable terms for themselves with suppliers (e.g. 60 -120 days payment terms whereas small companies will rarely get much of an extension beyond 30-45 days)’

2. Try to see if there is any segmental analysis for this. Depending on whether these are outright property sales you may need to consider how this element has affected the results. Often larger chains with resorts do ‘time share’ sales, which in terms of maintenance will incur similar costs to the rest but can be passed on as charges to the ‘owners’ . See what information is available as there may possibly be a special accounting treatment whereby with the actual sale of a time share a portion of the sale is held in reserves and only transferred as income to the income statement over the life of the time share.

Once again I must stress that my knowledge and experience of this industry mainly relates to personal social experience rather than having any actual experience of the hotel trader’s financial working practices.

Hi Trephena

Thanks a lot for your reply. I’ll take note of the points you mentioned.

I forgot to mention that my main company X is a subsidiary of another bigger company Y. Can I use strictly company X as my main company because the parent company Y deals in other sectors. To be noted that I have the detailed financial reports of company X separately.

Thanks

Hi Trephena

Thank you for your valuable answer. I would be most grateful if you could clarify the following:

Question 1.

My main company deals in several countries in the world but reports in pounds. The issue is I have comparative figures both in CONSTANT currency and REPORTED currency. Under CONSTANT currency, they made a reduction in profit and under REPORTED currency (due to depreciation of the pound), they have an increase in profit.

Do I need to submit ratios for both figures? if yes do i need to make a dual analysis? One for CONSTANT currency and another for REPORTED currency? (Note that the absolute figures are different under each of them). I’m worried especially for key ratios like profit, and REVPAR figures.

On the other hand, I searched for a simpler company ( food sector this time) which deals only in one country, but i have a problem with it;s competitor.

My competitor’s annual report 2016 is 01 Jan 2016 – 31 Dec 2016, however the 2015 report is 01 july 2015 – 31 dec 2015 (6 months only!) because it changed its year end. However, it also includes comparative figures for 01 july 2014 -30 june 2015.

Question 2.
Do I need to pro-rate 01 Jan 2015 – 30 june 2015 in the comparative figures (6 months) and then add in the given figures in the report 01 july 2015 – 31 dec 2015 so that i then have a full year 01 Jan 2015 – 31 dec 2015 ?

Question 3.
Is it compulsory to show a 3 year analysis for our competitor, or does the latest financial statements (competitor) suffice for evaluation of the main company?

Thank you very much

@Salman – sorry for not answering your query. Yes Boeing and Airbus would be suitable comparators. Don’t worry about the different currencies as using ratios obviates the need to translate currencies (which are not a good idea in the case of drawing comparisons as it introduces an artificial dimension that is not controllable by a company as currency fluctuations are dependent on international currency demands and complicated economic factors. Currency differences may influence company strategies but that is a separate issue to drawing comparisons)

@nzeadall – I’ll answer your detailed query with respect to (1) when I have a spare moment. I have addressed (2) elsewhere on the forum – so please see the query from Chenjerai towards the top of Page 2 and my reply further down.

With (3) if you only do 1 year’s worth of comparisons you are unlikely to get a grade higher than a C. The main company must always be 3 years

In Part 2 of RAP, I’ll be mentioning ratio analysis under accounting techniques used.

There are various categories of ratios such as profitability ratios, liquidity ratios, etc and each category has got many kinds of rations such as profit margin, ROCE, etc.

Which ratios do I choose, to briefly comment on?

Also when stating limitations, do I mention them in general for Ratio Analysis or specifically for each ratio?

Please note I’ve chosen the Hotel Industry.

@accastudentofoman – This is quite basic stuff and I would have thought that if you had a decent mentor this would have been discussed between you??

You need to consider the most important ratios: gross profit and net/operating profit being key and you also along with some liquidity ratios need to look at gearing. There should also be some discussion of investors returns and ratios. I have however always stressed the work is not just about calculating figures and percentages – it is also about explaining what has driven performance (so see the answer immediately above). For the hotel trade you should also consider room occupancy rates,and other KPIs used in the industry. Read the written part of the annual report that precedes the financial statements to find these