Using an AIRLINE for T8

@linia said:
Hi I have been reading all your comments and I have to say I am very impressed with your responses. The only regret is I did not come here sooner as I am left with less than two weeks and I had no idea what analysis and evaluation is, load factors as KPIs were necessary. Although mentors are only meant to guide you they can drag you and leave you drowning.

I told my mentor in section 2 that ratio meanings and calculations are not necessary as it is making me over by 500 words, but she still insists that I put them. I considered of removing some ratios like payables payments, acid ratio but all she said you need to cover as much as covered by your ACCA syllabus. Part 2 limitation of ratios and SWOT and Pestel models, she just said use textbook style and ref. At what point will put the limitation of year ends on my ratios, that my ROCE did not match to the company etc. Do I put that on part or 3 or 2. She had said I could put on part 2 under limitation of information gathering but on limitation of ratios as I should put only text book styles of responses I am really confused. She has wasted my time trying to perfect part 1 and 2 rather than me focusing and spending more time on 3.

Though I am not in a perfect position, but as a fellow student, I am really shocked that your mentor really guided you BAD. I can feel your pain as I really know how much this project can mean to someone and being directed bad by mentor is horrible!

Airline KPI’s aren’t an issue as they aren’t really hard; I was able to understand them within couple of minutes by searching on net. So, I will recommend you that you SHOULD remove payable and acid test and any such ratios because they aren’t suitable for service sector at all, and it can be major reason for a failure.

Don’t fall in a trap that you need to cover every single ratio that is on earth. No, you can’t because if you do, your word constrain will make them very weak. So, my recommendation is that you should remove above stated ratios, and use KPI’s such as load factor, Available Seat Kilometers, and Yield to explain the trend in Revenue. This will really boost your passing chances. You don’t have to calculate those ratios as they are given by almost every airline in their annual reports. Just google the definitions of those KPIs and you will understand very quickly. I believe you still have time to make those adjustments if you really wanna increase your chances.

Yes, remove ratio definitions if its eating your word count, Your analysis is the key thing to succeed.

And, state the limitation of your analysis and your report that you incurred at part 3 after doing analysis, or after conclusion.

Regards,

Hi @Trephena , Thanks for all the guidance you provided.

Just quick question, I really faced some problem with reading the annual reports of my chosen company and its comparative , they are using underlying(non-statutory results) to calculate ROCE instead of using the statutory consolidated results therefore, which one would you think appropriate. the difference is mainly capitalizing operating lease and adjusting EBIT with notional deprecation.

I am really stuck-

Thanks

@ ehsan, thank you for this, what about ROCE, should I base the capital employed based on the adjusted capital employed which considers payment for operating lease as capitalized? or the normal way of getting capital employed(total assets-current liability)

Thank you

@trephena said:
Some excellent advice there from @Ehsan – put your ratio calculations in the appendices – and please do NOT Bother with the Quick ratio / Acid test as it totally POINTLESS for a service industry

@linia -whose RAP is this – yours or the mentor’s? Who is paying the GBP 225 submission fee? You I assume on both counts! Follow our advice (@Ehsan’s and mine) and tell the mentor that you will take full responsibility if by following it you fail (more likely if you follow hers I fear!). And yes @Ehsan is right don’tbother do the payables ratios – the liquidity ratio will suffice. Take a look at my advice on Topic 15 and why you shouldn’t use an Airline for this topic (out in Topic 15 and airline in the search facility and it should bring it up) you will then understand why but you could mention in limitations if you have enough words why you are not doing these irrelevant ratios. And yes again @Ehsan is right – evaluation is everything when it comes to passing 🙂

PS just trim all the rubbish from Parts 1 & 2 – you marker doesn’t need to know in the report why you chose the topic and company – and tell the mentor I told you to do it 😀

Yeah, for industry sector, all these ratios are irrelevant:

1) Gross profit

2) Receivable days

3) Payable days

4) Inventory turnover

5) Quick ratio

Though, there are few ratios to calculate for industry sector compared to conventional manufacturing one, but mostly all service industries have their KPI’s, from banks to airlines.

Hmm, similar,

1) Revenue analysis with Yield ASK and Load factor

2) Operating profit

3) Net profit

4) Gearing

5) Interest cover

6) Current ratio

7) Fixed Asset turnover

Are you analysing each year or explaining the trend?

Why don’t you switch either ROCE or Asset utilization with Current or any other ratio?

In the end both ROCE and Asset utilization are saying how assets have provided return…

Just curious.

Regards

My word limit doesn’t allow.

I think I have covered 4 major ratios from 5.

Good luck.

YES!

Of you are interested we can discussion little tips in e-mail.

No project sharing.

ehsanshah556@gmail.com

@farhana001 said:
Hi Trephena…Could you please explain me the purpose of ROCE and asset turnover ratio?

ROCE evaluates the return company is getting from overall capital. And capital includes both assets and long-term liabilities. You employ assets and take loans to make profits, so that’s what ROCE shows.

Asset turnover, shows how much company’s assets are efficient in making revenue. In airlines, aircraft are key components, so, Asset turnover will evaluates whether company’s aircraft are making good level of sales or not. This can be identified whether companies aircraft are obsolete, thus, aircraft mainly stays on repair shop and sales are affected, are they using aircraft on profitably routes or not.

Generally, ROCE will take account of all finance that company uses to make a profit.
Asset turnover evaluates whether key assets are being used efficiently or not.

Or, ROCE evalutes efficiency of a whole company, and Asset turnover evalutes the efficiency of assets.

Regards

Hello,

I wanted to ask about the colors of the graphs.
Can I use different colors for different graphs? I did not make the RAP childish or a riot of colors, but I did spent some time perfecting the color scheme of graphs so they look decent and good.

But now have heard that its better to select one color for the main company, and another for the comparative company and use that in all the graphs of ratios. Is that mandatory or helps to pass the project?

Please advice as I still have time to change and include in RAP if needed.

Thank you!

Dear Trephena,

Thank you so much as always for your helpful explanation and swift response.
Yes, I understand, was trying to put off changing the colors but its better to spend some time correcting them now rather than risk making the marker frustrated.

Thanks again and yes you can definitely move the post. Sorry for the inconvenience.

Best regards.

If you see Annual reports of many service providing companies, they don’t calculate or show Gross Profit. Because, they aren’t manufacturing anything. Furthermore, Airlines major purchases are Aircraft which aren’t as simple as purchasing raw materials on credit terms. It is very difficult to obtain such an inside information as companies are very hesitant in providing such information. In much, you can obtain whether aircraft are leased or owned.

It is much better to divert you words on much relavant information such as RPK, Asset Utilization, Load Factor, Yield, ASK and much more.

Only if you can get some good information on payable terms then inly proceed, other then that markers won’t appreciate superficial stuff.

Regards

1) When I prepared my report on these companies, I could find RPK and Yield of respected airlines. Just do more thorough research, or try to obtain these airlines media release ASX (stock exchange information that they have to provide after year end). They provide very informative information in a concise and comprehensive form.

ASK and Load factor are OK, but if you could find RPK and Yield that will be PERFECT.

ASK will be your supply, RPK will be your demand, and Yield will be fare.

Demand and supply relation will really add an value.

2) Yes, you need to move away from text-book approach. These are key metrics in airline industry which drive Revenue, and profit.

3) Many people add, many people don’t, choosing ratios is up to you, also discuss with your mentor. Try to conduct ratio analysis for at lease 4 out of 5 metrics:

a) Profitablility
b) Gearing
c) Liquidity
d) Efficiency
e) Investor

Regards