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You need to appreciate the importance of KPIs and not just ratios (and if you have done the Quick Ratio / Acid test then please bin it right now!!)
I have recently made a post on Topic 8 Financial Statements – see if the answers there help. I have also added advice on how to approach evaluation and anlysis (it is NOT just about calculating ratios and commenting on figures/percentages). We have an article on Evaluation & Analysis too on our homepage http://www.opertuition.com/obu
Dear Moderator,
Brilliant advice. So happy came across this forum. I am comparing BA and Virgin Atlantic for submission in May and my approach planned for analysis is a combination of ratios/KPIs, PEST and SWOT.
I am considering including a M.O.S.T analysis as well and was wondering whether this technique would be a good fit?
Additionally, since I am submitting in 2017 Im planning to use years 2014, 2015 and 2016. financial statements for 2016 for both companies have not been released yet but are timetabled for first week in March. Meanwhile I am working on the years I do have.
Would this be a good idea? or should I do 2013-2015 instead. I am a bit skeptical about the 90 day rule. Thank you so much for your time.Please enlighten me (and probably lots of others too) what exactly is a M.O.S.T? (These trendy acronyms come and go but SWOT and PEST have stood the test of time). Unless it is particularly pertinent leave it at the other two as you won’t impress the marker by the number of models you refer to -your grade is determined on how well you apply them (and I have seen marker feedback telling the student not to apply the theories thinly and use fewer so they can focus on them better)
So apply the models before the ratio analysis as they are intended to ‘guide’ your analysis. Management strategic decisions are usually based on the factors from the business environment and the decisions will have influenced performance so you need to show links between the SWOT/PEST and the financial results by tracing the decisions and tracking them through the trends you find.
Regarding which statements to use this is your decision. If you are wrongly failed for out of date statements this is grounds for an appeal and if it was the only grounds for the fail the appeal would be successful.
However you would be able to prepare the other 2 years before the 2016 FS come out (including doing the draft graphs) and you would still have more than a month to include the latest year. So your choice 🙂
If it were me being the perfectionist I am I would be doing 2016
Thank you! That was my train of thought regarding the 2016 statement.
M.O.S.T – Mission Objectives Strategies Tactics and it looks at the internal environment and whether the company has achieved its set out goals and objectives and to what extent.
Topic 8 seems fairly popular and I do want my RAP to stand out and not be a just another repetitive report so I thought of including a more modern technique alongside my PEST/SWOT.
However I would rather end up with a well round and written report than one that just plugs in technique after technique.Again sorry but I do have another question if you do not mind. On BA’s statements they are prepared as the consolidated statements. In the report there is a separate SOFP for BA alone but there is no single income statement just the consolidated.
For some of the financial ratios and analysis itself I would need the figures from the single income statement. Do you have any suggestions how to approach this?
Analyzing the group would present a skewed picture and also unfair comparison unless Im mistaken.I think you are going to have to go along with analysing this at a group level. Many of the subsidiary companies in the group are not significant revenue earners anyway and offer complementary services to the main company activities.
P.71 has some very useful KPIs and there is a lot of other useful information in this report. Now that you have explained what a MOST is I think you could use this. I would mention it in Part 2 and say that you will assess these factors after you have done your business and financial analysis. Then when doing the Conclusion I would assess how successful the company/group has been in respect of these aspects (Mission Objectives Strategies Tactics) – in this way I think you will be able to produce a very rounded Conclusion as you will be bringing together the significant findings from your business and financial analysis.
I wonder how people squeeze so much information in just 4,500 words in part 3. Lets make 5000 at stretch.
Hi,
I am considering doing my RAP on Lufthansa and using Qantas for comparison.
Am I permitted to use airlines based in different countries for comparison?
Please advise.
Thanks
Hi,
To add to my previous query, which are the typical ratios / numbers that needs to be analysed and explained from an Airline while attempting T8. A brief idea would help…
So far reading the forum, I could gather that inventory related ratios are meaningless… What I could not gather was which ratios to focus on, given the word count limitation..
Thanks a lot
Well if you have been reading these forums you will know that I stress the importance of linking the factors from the models to the actual trends in performance.
Ratios on their own are insufficient to meet the assessment criteria it is your interpretation of them with reasoned analysis that counts. First discuss revenue including growth and revenue per available seat per kilometre (ASK). Then move on to operating profit and again bring in any ASK KPIs. A significant part of airline operations is investment in fixed assets (i.e. aircraft) so Asset Turnover is useful. Gearing in connection with the lease or buy aircraft decision is important -whether long term loans are use for the latter or raised via share issues.
You probably only need to mention the current ratio in passing as cash flow is more important. I covered the reasons for the complexity with regard to working capital on the Topic 15 forum while discouraging students when thinking about using an airline for this. Don’t bother with payable/ creditor (or inventory)
as the working capital cycle if you read my T15 is too complex for you to be able to calculate this accurately -try to find my post as I explain why the working cape cycle is complex for someone outside the co to calculate meaningfully.
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Hi, I’m planning for the submission 34 which this may and the company I choose was Ryanair and easyjet.
As the Ryanair annual report for March 2017 haven’t published, can I use the annual report end March 2016?
While for easyjet, I need to adjust the financial statements to compare with Ryanair and hence, I need to use the 2016 quarterly report?
The disparity between publication dates has been discussed many times before on this forum. The 90 day rule is set out in the Information pack. I suggest you read through the posts on here as in addition answers to your queries you may pick up a few suggestions and hints on how best to approach this topic.
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Thank you for your prompt reply. I have read it and just want to counter confirm it.
But for the competitor that easyjet, i feel confuse on how to apportion the financial period. can explain by example for this?
Normally apportionment is not necessary. Provided both sets of accounts cover the main peak periods e.g. for these two airlines there are two peak periods summer June to September and Christmas (summer being the main period of revenue earning with maximum number of flights per day).
You need to compare the trends in the data (annual revenue growth rates, costs/revenues per available seat per km, aircraft utilisation, load factors, operating profit, gearing, EPS and discuss cash flow. These trends because they run over 3 years are usually sufficient without apportionment.
The factors behind the trends are what will get you your pass. The actual reasons for the main company’s performance needs to be tied to the SWOT and PEST factors and strategic management decisions which will have been based on these. Many of the PEST factors will apply to both companies so significant differences in performance ratios will mainly be down to strategic factors i.e. how management have implemented decisions based on the SWOT factors (or ignored them). However it is important to recognise the impact of leasing or buying the aircraft outright as this will impact on operating profit, gearing and equity ratios, asset Turnover etc. Where both companies lease this is not a major problem as you are comparing like with like.
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I’m using Ryanair from March’14 to March’16 while easyjet is September’14 to September’16, so I will only have two peak period to compare which is June’14 – Sept’14, Christmas 2014 and the same for 2015. Hence, only analysis these two peak period or i shall adjust?
Apportionment is not really necessary – you focus on your main company, the trends and strategic decisions as I have already outlined in my post above.
If you are not happy with my advice, then apportion but most students do not.
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Oh, i didn’t disagree with your advice. Maybe my communication is poor so my word let you have such feeling. I was confused on the peak period as both airline are difference year ended.
Can limitations be included in part 3 as well? Limitations like why im not using quick ratios or why i had difficulty finding ratios only relevant to airlines etc or why im using something different to elaborate a point about my airline? Should all these limitations be included in part two; limitations of information gathering or i can include limitations in my conclusions in part 3?
When considering airline at group level for financial and business analysis, should the focus be only on passenger segment and subsidiary airlines or whole group which include segments like cargo, catering, maintenance etc as well?
Thank you.
@trephena and @ehsan Can limitations be included in part 3 as well? Limitations like why im not using quick ratios or why i had difficulty finding ratios only relevant to airlines etc or why im using something different to elaborate a point about my airline? Should all these limitations be included in part two; limitations of information gathering or i can include limitations in my conclusions in part 3?
I am doing T8 with Emirates Airline as the main company.
Can you provide some insight into the areas I need to focus on when doing SWOT?
Particularly for weakness, since not much data seems to be available…
Thanks
@saan – You could start your financial analysis with a discussion of the main company’s revenue and include segmental analysis here. For the rest of the analysis you should compare total operating profits etc of the two groups. It may be appropriate then to comment that a particular segment has contributed significantly to this but normally apart from freight, other segments such as catering and maintenance contribute relatively insignificantly to profit as the last two are not the main business.
@mayanisa – I am not sure I totally follow what you are asking here… The limitations section in Part 2 is about limitations in data gathering and the accuracy of the data and information used. It may be appropriate to bring in limitations in Part 3 where you feel that your comparisons may not be totally valid because of differing accounting treatments used by the companies or the way they group expenses in their financial statements.
I am concerned about your statement “i had difficulty finding ratios only relevant to airlines etc”. This is not what I have said. To reiterate briefly: it is pointless calculating the Quick ratio for ANY SERVICE industry as there is no tangible product and therefore relatively little stock. KPIs for airlines (load factors,and ASKs etc. ) are very useful as the industry uses these themselves as measures of performance. Asset turnover and other such efficiency ratios are useful too especially where an airline buys its aircraft rather than leases them. Various aspects of the current ratio (parables/ receivables) are not so clear cut as in some industries because of the complex operating environment as I explain on the forum topic 15 (and why an airline is not a good choice for this topic) therefore you could explain that it is a limitation in producing reliable meaningful ratios for these and why. Otherwise most of the ratio analysis approach is similar to any other company although the emphasis is different because of the capital intensity i.e. most industries (apart from oil and gas and those involved in heavy capital infrastructure projects) are not faced with such regular high outlays on fixed assets and therefore how an airline manages its funding strategies and the balance of loan capital, equity and cashflows is very important.
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