- This topic has 184 replies, 54 voices, and was last updated 4 years ago by
.
- Posts
Sounds fairly good -but throw something in about the current ratio (not because you really need it but sometimes I get the impression that markers have a tick sheet: have they covered gross and net/operating profit? Tick. Have they looked at gearing and/or debt/ loan capital? Tick, Have they covered investor ratios? Tick. Have they considered liquidity and/or operating cycle [the latter is not relevant really for hotels]? Tick……
Hi @trephena
I am trying to do my RAP now for Nov 18 submission. I have been trying to figure it out for the last few weeks reading all the forums and articles I can find but the hardest thing is where to start. From what I have read topic 8 is a solid and popular choice, so that is the one I have chosen!
So here are a few questions:
1. Are there any specific industries or companies that are good/have to choose?
2. I keep seeing something about a rule as to how recent the accounts have to be. Could you clarify this?
3. Would there be any potential issues in trying to complete the RAP by July (ignoring time, I will put all my time into it) for November 18 submission?Thank you in advance for all your help.
BenThe potential big problem with Topic 8 (and 15) is that the industry sectors are due to change for Period 37 (Nov 2018) onwards. Until the industry sectors are confirmed (July)’ you cannot select a company.
Personally I am not a fan of Topic 8 and my advice if you want to do a lot of work before July would be to choose a different topic. My personal preference is new Topic 19 (see the latest Information Pack) as it deals with current very important issues and has the scope for a lot of critical thought and thus the potential, if done well, to get a high grade.
- Topics: 0
- Replies: 29
- ☆
Hello @trephena
Does this Saturday evening find you with a bottle of Rioja? I myself have taken a detour off into some rhubarb infused gin, which is quite interesting. It is softening the blow of having to work on and edit my RAP on such an evening.
I wonder if you could offer some insight into Operating Leverage? I understand it as a concept (I think), but when I use the equation:
(Degree of) Operating Leverage = % Change in EBIT / % Change in Sales
I see a huge drop (from over 5 to less than 1) in the third year, despite no material change in fixed or variable costs. I mean, each year the costs are increasing but fairly linearly. There is a slight increase in fixed costs as a proportion of total costs, but it really is small. In these cases I would expect the DOL to be roughly consistent.
The sales increase for that year is smaller than previously, leading to a small denominator. But the increased fixed costs (higher operating leverage!) means a small increase in the numerator, too. So you end up with a DOL at roughly 1.
So it feels a little bit like this is just a quirk of the calculation, particularly as the company has not taken any actual steps to reduce fixed costs. So I’m at a loss as to what to say. Do I note it as an anomalous quirk of the equation, and that there has not actually been a decrease in operating leverage? I can’t use a different equation, as I don’t have an easy way of identifying the cost mix for Premier Inn (the above calculation with this comparator yields sensible results).
If I can’t reconcile it I might have to leave it out!
Also, slightly off topic. I plan to send copies of my RAP to friends for feedback in addition to my mentor. I’m always keen for more though; is there a mechanism where OT members can submit their RAPs privately for Moderators like yourself to cast a critical eye?
Regards, O.
Unfortunately not – however there will be a bottle of merlot ready and waiting on our table for Sunday lunch in our local .
Operating leverage? Do yourself a favour and don’t over complicate things ! Stick to KPIs and more simple ratios and measures of financial performance . Remember it is better to analyse and evaluate information well (by demonstrating linkages between the factors from the models) than jam in ratio after ratio. Rule of thumb: If you can’t say anything about it why include it unless it is something normally key like gross profit ??? So to quote you (and Eastenders completely out of context !) “leave it out!”
Unfortunately I just don’t have the time to review RAPs anymore but it is a good idea to let family /colleagues / friends read your work. Often students bore the pants off readers with an overload of unnecessary figures that would even try the patience of a maths boffin (without bothering to explain the deeper reasons underlying the changes in the trends). So don’t be cross if anyone constructively tells you they felt they were drowning in a sea of numbers (the sad fate of many markers apparently) – just pour yourself another glass of rioja and them one too and resolve to address the issue !
My advice for any Topic 8 in 3 words Explanations, explanations, explanations!
As predicted Merlot on ‘our’ table and just devoured our Sunday lunch – the dog loves his Sunday outings and all the titbits and knows exactly what day of the week it is!
A few mantras from the pub: “drink wine – it’s not good to keep things bottled up!” and ‘they should make wine bottles bigger so there is enough for 2’ All seems to make sense…
- Topics: 0
- Replies: 29
- ☆
@trephena Ha! I went for a roast myself this evening and have become very well acquainted with a bottle of Tempranillo. I’d have liked to get to know it more but I have work tomorrow and I’m over 30.
What breed of dog do you have? I love dogs. I don’t believe in the concept of a soul myself, but if they do exist, dogs’ are the purest.
I appear to have followed the road to operating leverage due to my concern of lack of ratios (or specifically, shareholder ratios on account of Travelodge being a private equity company). They do have high fixed costs which is what brought it onto my radar.
Without it I’ll have: revenue, market share, RevPAR, ARR, occupancy, gross profit %, ebitda %, times interest earned and current ratio. I could potentially bring in net debt/ebitda as a gearing-type ratio -unadjusted or adjusted at 8x rent as per Moody’s/S&P. However I’m currently 2,000 words over my word count, so I have some serious editing to do.
If I just left it out do you think I’d have enough ratio coverage?
You could just mention the high fixed costs as a point of concern (as afteralll fixed costs ultimately have to be covered) – trying to think why myself as usually a lot of hotel costs are variable. At a guess it could be property costs and fixed financial costs (interest on loans or preference shares/debentures/ mortgages).
Like the Moody’s idea as you do need something about gearing.
Cut out a lot of the guff at the beginning and don’t repeat what graphs are able to depict. These days most sources are found on the web so you do not have to drone on about all the different sources. Limitations though are expected.
My partner’s dog not mine – I am more a cat person although the dog does seem to regard me as the Alpha female in his life (or should that be the Soft Touch in his life ?). It is a Shie-Tzu – fits in an apartment and doesn’t need too much exercising.
Late nights and booze are the preserve of under 25s – though I do my best to cope by not over indulging. I deal very well with Mondays – as most of my work can be accomplished online I am spared the commute and can work hours to suit. The invention of the laptop is my saviour and means most of my working day is accomplished in winter in bed with a duvet up to my ears and a huge mug of tea on the side -perfect!
Hi @trephena
For topic 8 can I ask how the financial statement dates for comparative companies works?
The main entity most recent financial statements are as listed below:
1 April 2016 – 31 March 2017
1 April 2017 – 31 March 2018
1 April 2018 – 31 March 2019However all comparative companies don’t have FY19 accounts available yet, with the below dates of published financials being the most recent:
1 January 2016 – 31 December 2016
1 January 2017 – 31 December 2017
1 January 2018 – 31 December 2018The 2019 financials won’t be available until after the submission date for period 40.
There is only a three month difference in the financial year ends of the above, however the headings for comparison data vs actual is likely to look odd.
Is it OK to use companies with the above dates as comparision?
If so could the headings be labelled as 2016/17, 2017/18 & 2018/19 for the main focus entity, with the comparisons labelled 2016, 2017, 2018 with an explanation paragraph or comment in the introduction explaining the slight difference.
Any help is greatly appreciated.
As you say, there is only a 3 month difference so this is unlikely to present a problem for comparison purposes.
I would go with your suggestion in your last paragraph and point this out – both in Part 2 and via a brief footnote when presenting the first graph (saying all subsequent graphs are produced on the same basis -noting any that may not be -possibly those related to share price ?)
- You must be logged in to reply to this topic.