Examiners Report Topics 4 and 5

[@nankumarghanshiam5095]

Hi , For the comparator company, is it advisable to perform same business analysis and ratios analysis and place them below the target company's business and ratios analysis?

[@bscappliedaccounting7796]

YOu are analysing the competitor company to enable you to analyse why your company has performed the way it has. What has your company done well to make it outperform the competitor? Your report must identify the reasons behind the strong performance not just describe the ratios from two different companies. If you just describe performance (using rati analysis) but don't explain why this might have occurred you are likely to fail.

[@nankumarghanshiam5095]

@bscappliedaccounting7796 thank you. Appreciate the response

[@akmalkarim5145]

Hi, I plan to submit my RAP for May 2025 period. Is it okay if if my ratio is from 2021-2023? This is because 2024 audited are yet published until April 2025.

[@waqaskhan7373]

Hello, I need help with one of the requirements for topic 5 which says "The chosen company's year on year changes must be significant and not minor changes". Confirm whether the requirement expects significant changes in all year-on-year comparisons or if one significant change within the period is adequate. for example ABC's revenue growth in 2022 - 2023 was 0.22% (Minor) while in 2023 - 2024 it was 126%! (Highly significant). Consequently the changes in ABC's Gross Profit and Net Profit are also MINOR in 2022 - 2023. Do you think ABC is an appropriate choice or should I change the company?

[@bscappliedaccounting7796]

We would normally advise that the performance is exceptional in 2 of the 3 years. You might make an argumnent that the exceptional performance was in the last year. In this case you would need a very strong business analysis to explain how the company had performed and why this would continue - what is it in the business model that means it will continue to be exceptional. It is likely to be something the business has done, not taking advantage of the external environment.

[@marthasunmboye4490]

In a situation where I have calculated let's say about 10ratios across the types of ratios is it okay if in my ratio analysis I just pick just the ones I feel show exceptional performance? And what's exactly is financial exceptional performance. Is it like more than 20% increase ( where good), etc...

[@bscappliedaccounting7796]

I would include a table of all the ratios and then say you are focussing on those that show exceptional performance and explain the underlying reasons.

[@bscappliedaccounting7796]

The topic requires you to select a company that has performed exceptionally well or exceptionally poorly. If it has performed EXCEPTIONALLY well then it mut have performed better thanits competitors. You need to think about the justification of the choice of company and how you are judging exceptionally well. Financial performance is one aspect, there may be others.

[@user-si3ql9zg5m]

This is the markers judgement

[@shepherdjuniormasasi2251]

Hello,May i ask if its okay to use histotical financial figures for a company operating in a hyperinflationary economy

[@bscappliedaccounting7796]

Great question - you will need to make some comparisons so maybe consider rate of change - comparing % increases / decreases. You may want to consoider whether your chosen competitor / comparator is facing the same challenges. If you are using a competitor in the same environment, comparing these two may be valid. You need to acknowledge that this makes the analyysis more difficult and explain how you dealt with it.

[@marthasunmboye4490]

What are significant Yr on Yr changes

[@aivinjohn9019]

Hi, the company i selected for the RAP is performing well in terms of its revenue and profits. However, while coming to the efficiency ratios, the performance is not that great. So, should i completely exclude these ratios from the RAP? Or do i need to still include it and give the reasons for the bad results there? What you'll suggest?

[@bscappliedaccounting7796]

Hi, definitely include those ratios and explain why you think that might be the case. This is part of the critical evaluation and demonstrates the analysis and evaluation skills

[@ricardoshillyshally4593]

Can I use companies having different year end months, Dec and March

[@bscappliedaccounting7796]

Yes you can. You may want to reflect on whetehr different year ends make any difference to the comparison.

[@DevHarish-k5n]

One more question is that for ratio analysis how many ratios is enough? Among profitability, efficiency, liquidity, risk, investor ratios if significant how much is enough like significant 5 ratios is enough?

[@bscappliedaccounting7796]

The number of ratios depends on the argument you are making. You are looking to analyse why your company has performed in the way it has, one reason might be new product development / new markets - this requires investment so ratios looking at R&D spend might be approriate. If it is performaing exceptionally well looking at profit then thinking about why the profitability ratios are strong is important (is it cost control, or pricing?) WE normally expect to see profitability, efficiency liquidity but the most important part is linking this to the business model and the business's response to the external environment.

[@DevHarish-k5n]

Ok thanks Dr. Samantha

[@muhammadimran-hs8mt]

Hi, in topic 5, I have a question in RAIO analysis, do we really need to mention a 2nd reference of each ratio? Like if the ratio is constant in three years or no major impact, people are not commenting on it, it’s very difficult to find a 2nd source online. Also, if we omit a ratio by having not major impact / constant, where we can mention such notes for the examiner like “I have omitted/ignore ABC ratio as it has no major impact in all 3 years”

[@bscappliedaccounting7796]

Itis important to focus on the ratios that have shown the greates movement. Rather than omit the ratios that haven't changed significantly included them but say no significant changes. For the sources you may want to link back to the business analysis. It is the business analysis that may provide some of the underltying reasons for the changes.

[@DevHarish-k5n]

Hi samantha, i have question on topic 5, for choosing competitor company to benchmark my research company should the comparator be loss making inorder to say that my company is exceptionally well? Or both are making profit but my market leader company making more revenue and profits than my comparator is fine? Just in the case of financial performance I'm asking. Its not always my comparator to be loss making to justify my company exceptionally performed right?

[@bscappliedaccounting7796]

The competitor should be a genuine competitor in the sense similar size, simialr market, similar products. Chosing the competitor because its loss making is not adequate justification. It is absolutely fine if it is making a profit but that profitability is likely to be less than your chosen company

[@DevHarish-k5n]

Ok thanks Dr.Samantha

[@muhammadimran-hs8mt]

I am working on topic 5, want to know in RATIO analysis, do we need to re-explain and re-link source of information in each ratio? as an example in Interest cover ratio, if the result is well enough due to having exceptional operation profit, which is linked with exceptional Gross profit (GP), however the increase in GP already explained with link to external sources in gross profit margin ratio, do I again need to explain it in interest cover ratio, the reason for increase in GP or I can just mention that it is due to increase in GP, which is already explained?

[@bscappliedaccounting7796]

Hi for intertest rate cover you can make reference to the explanations provided for gross profit. The key with gross profit is to explain the possible reasons why - what is it in the external environment that might have explained this performance.

[@urdupoetry4281]

Hi, I was working on topic 5 for period 49, but unfortunately, I was not able to submit the analysis, which I have almost 99% completed. Now if I submit it in next period (Nov 2024), the annual report of 2023 is also available for the company I have chosen, do I really need to add another financial period & delete the first one in my analysis? The current RAP was for three years from 2020 to 2022, Now 2023 is also available, do I have to delete 2020 and add 2023 In my RAP?

[@bscappliedaccounting7796]

Yes you will need to update the financial information so you are using the most up to date available information

[@uyangaurgaa]

Hi, I have a question about the period. Is 'over a 3 year period' means that the company has been performed exceptionally well for a continuously 3 year and kept the success for a 3 year period for the topic4?

[@bscappliedaccounting7796]

This means the company must have performed exceptionally well for the 3 year period. It might be the case that the performance was trending upwards so year 1 of 3 was good and years 2 and 3 were excptional. Or that years 1 and 2 were exceptional and there was a slight downturn in year 3 (the perfromance in year 3 would still be good).

[@birdseyeview6776]

For Topic 5, can we choose a private company which is not legally required to disclose its financial performance to the public? I am an employee in the company and its has doubled its revenue in the last few years and I want to do research on it. No financial statements or other reports of the company is publicly available. However, both the company and the comparator company have agreed to provide be their details including financial statements, internal reports and other internal information.

[@bscappliedaccounting7796]

The Information Pack (page 12) states "Publicly available information must be used". Therefore you must reserach a company that publishes information in the public domain.

[@hungrylion7742]

Thank you Samantha

[@marthasunmboye4490]

Pls what do you mean when you said if a critical ratio doesn't show exceptional performance and its not added I you analysis you have to justify not adding it. Pls could you explain further what you mean here

[@bscappliedaccounting7796]

If you leave out a ratio (such as GPM) then the reader will ask themnselves why you left it out. So you need to explain your reasons - it might be that for that industry sector or type of business a particular ratio is not relevant.

[@pratikshah6731]

Hi, for topic 5 does the company have to be a YOY exceptionally well performed company or will it still be eligible if the company's performance fluctuated YOY? For e.g. 2019's performance was good, In 2020 the company performed negatively while in 2021 it performed exceptionally well.

[@bscappliedaccounting7796]

Tghe company does not have to have performed exceptionally well in all years but a minimumj of 2 out 3 is necessary. It is essential that you include a justification of why you think the performance is exceptional. It does not need to be just financial

[@urdupoetry4281]

Hi, i am working on a company showing sale growth exceptionally well in year 2021, 2022 but suddenly sale dropped in 2023, is it ok to work on it by having at least two years exceptional growth?3rd year although well compared to old periods till 2020 but not much good compared to 2021 and 2022 Thanks in advance for your kind comments

[@bscappliedaccounting7796]

In the three year period you look at, you need to be able to explain why you think it is exceptional performance. That can be 2 of the 3 years. In explaining performance, you need to think about the business model and external environment. What changed in 2023 so that teh performnace was not as strong - competition? The business analysis (SWOT PESTLE) should help you with this part of the analysis.

[@sayma9793]

Hi, at 2:41 it's mentioned how the year-on-year change should be significant. But what if a company had suddenly gone into a slump 3 years ago and year on year, it hasn't shown much change - so next to no improvement in their performance. Will such an entity qualify for topic 4?

[@bscappliedaccounting7796]

Hi, the key is that you justify your choice of company. So if it declined 3 years ago - why was that, and why has the response been so poor. You may find it helpful to consider the company's competitors - how have they responded have they done better than the company you are thinking about. Why was this?

[@iqrajaved4059]

@bscappliedaccounting7796 My concern is if the company is performing better than its competitor in all categories of ratios except liquidity or gearing then will it still qualify for topic 5?

[@bscappliedaccounting7796]

You need to think about and analyse the reasons why it is performing better in the other ratios. Might this explain why liquidity is worse than the competitor (is your company investing more?) Gearing is more a strategic choice about how to finance growth. So, yes yoiur company could be performing exceptionally well you need to discuss these other ratios.