Most students fail because they merely describe the movement of numbers observed in financial statements and present that as analysis. A keen and critical eye from a good mentor pushes students to refine their work and secure a good grade for their RAP.
Which of the following samples contain analysis?
- The current ratio fell due to a fall in the total amount of cash held by the company. This indicates a worsening liquidity position.
- The current ratio may have fallen due to a fall in receivables, which may have been a result of the shortening of the credit period given to customers.
- The fall in current ratio was due to a change in credit policy instituted by the company in response to the rise in bad debt observed in FY2017 (The Straits Times, 2018).
Answer: Only Sample 3 contains analysis required by OBU.
What should RAP analysis and evaluation contain?
- Analysis explains the changes. Specific details which are researched and cited adds depth to the analysis.
- Students often mistake an observation of the change in numbers on the financial statements as analysis. That requires little research and is not accepted as analysis for a RESEARCH and analysis project.
- Avoid guessing. Do not use phrases like “profits may have increased due to…” If you have done your research, you should be able to state the reasons definitively.
- Do not analyse absolute numbers. Always focus your analysis and evaluation on ratios. Understand what the purpose of each ratio is and that should come through in your analysis. For example, students often analyse the components of P/E ratios without understanding what the ratio is indicative of. Without that understanding, the analysis of price and EPS movements add no value.
- Evaluation requires you to question and assess the validity of statements presented. For example, a company may have a high gearing ratio, but is that necessarily bad? A newly acquired company may not contribute much to the parent company’s profits, but is that necessarily a bad decision?
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