Beruflich Dokumente
Kultur Dokumente
SUBMISSION
PERIOD 31-32
PART 2: Information
Gathering and
Accounting &
Business
Techniques
It was quite difficult to gather information from a primary source due to the
social and other problems present in our country. I could not get access to
the company’s head office or senior ranked officials due to security issues
and the fact that they were not keen to meet anybody without a good
reference. As the last option, I held some discussion with my friends and
colleagues which belonged to the Finance and accounting sector and the
oil industry. I gained a good knowledge and understanding of the Oil
Industry from them and took their advice on how can I make my analysis
more useful and effective.
(http://www.library1.illinois.edu/ugl/howdoi/secondarysources.html , n.d.)
As told earlier, it was really difficult to directly interact or meet up with the
Shell’s management, particularly the finance department and the senior
ranked officials. Therefore it was quite obvious that I supported the major
part of my research and thesis on the information retrieved from secondary
sources. There are different types of secondary sources used to gather the
required information and these sources include: Newspaper, Journals,
Magazines, websites and annual reports of Shell and PSO.
The annual reports of Shell and PSO for the year ended 2011-2013 June
were downloaded from the company’s website www.shell.com/pak for shell
Pakistan limited and www.psopk.com for Pakistan State Oil. Some other
websites which helped me gather information about the oil and petroleum
industry were: www.brecorder.com, www.pakobserver.com ,
www.businessweek.com , www.financialaid.com. Some newspapers were
also helpful in my research like: The tribune, Business week, Dawn
Business page, The News and The Nation. Some course books of Kaplan
and Emile Wolf especially ACCA (P2-Corpoarte reporting and P3 Business
Analysis) And CIMA (F2-Financial Management) were really helpful in
gathering the required information.
•The Audited Annual reports were available but I could not get access to
the auditor’s working papers and objections due to the confidentiality issue.
• My major focus was on the Audited Financial Statements as I had no
access to the management’s internal reports. Wherever possible I used the
other information available to me to cross check with the financial
statements.
ACCA and IFAC provide a long list of general principles, known as code of
ethics, which helps a lot in avoiding any ethical conflicts and dilemmas
(http://www.accaglobal.com/pk/en/member/professional-standards/rules-
standards/acca-rulebook.html , n.d.). I therefore, abided by the IFAC and
ACCA code of ethics in order to perform my research and analysis in a
professional manner. As I mentioned earlier I was mostly relying on
secondary sources so there were no as such ethical issues involved. As I
retrieved information from the internet it caused a lot of problems such as
unauthentic, irrelevant and biased information. I put in a great effort to
ensure that my analysis’ are based on authentic information. I took care at
every step of my analysis that it is based on factual real findings. During
ratio analysis the interpretation of the information was done really carefully
so that my findings do not lead to a misrepresentation of the factual
information and present the wrong picture of the company. Using the spirit
of the code of ethics helped me a lot in giving an independent and objective
analysis which portrays the true picture of the company.
SWOT Analysis:
Threats: Elements in the environment which can cause problems for the
business.
When conducting SWOT analysis it should be kept in mind that this is only
a single stage of the planning process whereas there are many complex
issues which need a much in depth research and analysis before taking
any decisions.
SWOT analysis only covers the factors that are certainly considered a
strength, weakness, opportunity or threat therefore it is difficult to address
uncertain or two sided factors i.e. the factors which have both the element
of strength and weakness.
SWOT analysis does not rank the issues in the order of priorities.
SWOT analysis cannot provide solutions for the weaknesses and threats
and also does not offer any alternative decisions.
SWOT analysis is very useful in generating a lot of ideas but then to pick
and choose one of the ideas is very difficult.
SWOT analysis produces a lot of information but not all of it comes of use
in the decision making.
(http://www.business.qld.gov.au/business/starting/market-customer-
research/swot-analysis/benefits-limitations-swot-analysis , 27 February
2014)
PESTEL Analysis:
Political factors are the extent to which the government intervenes in the
economy. Political factors can include areas such as labour law,
environmental law and political stability.
Economic factors can include monetary policy, exchange rates,
unemployment rates, inflation rates and economic growth. They affect how
the businesses operate and make strategic decisions.
Social factors look into the cultural aspects, including health
consciousness, population growth rate, career attitudes etc. They can
affect the demand of a company’s products and the way in which it
operates.
Technological factors include aspects such as research and development
activity, automation, technological incentives and the rate of technological
change. They can affect the production, distribution and communication
with customers.
The Legal factors mostly consist of the constitution and legislations passed
by the government. These factors include consumer law, antitrust law,
employment law and health and safety law.
Environmental factors include ecological aspects such as weather and
climate change, primarily affecting the industries working close to nature.
Furthermore growing awareness of environmental protection has greatly
increased recently, changing the way in which businesses operate and also
their products and market.
(http://www.free-management-ebooks.com/faqst/pestle-09.htm , n.d.)
Financial ratios are not much useful on a stand-alone basis. Therefore they
must be compared against a benchmark. For example the benchmark
could be the industry norm. An average of ratios of the companies in similar
industry is taken and then we compare our ratios to them. This industry
average is difficult to obtain or is not similar to our type of business activity.
There are many large firms which operate in different industries and have
different types of divisions so it is rare to find a set of industry average
ratios similar to these firms.
Inflation can badly distort a company’s balance sheet. This would also
affect the profits, making the past performance and past data of similar
companies incomparable.
There are some seasonal factors which effect ratio analysis and
understanding of these factors can reduce the threat of misinterpretation of
the ratio analysis.
The same company may have different accounting practices and policies
distorting the comparisons for example first using FIFO and then the AVCO
method for inventory valuation.
It is difficult to generalize whether a ratio shows good or bad performance
for example a good cash ratio may show a good liquidity position but it
could also result in a low profitability due to large cash balance kept idle.
A company may have some positive and some negative ratios making it
really difficult to judge the overall performance of the company.
(http://www.investopedia.com/exam-guide/cfa-level-1/financial-ratios/uses-
limitations-ratios.asp , n.d.)
SAMPLE -2
PRIMARY SOURCE
“A primary source is information that is collected first hand generated by original research tailor-
made to answer specific, current research questions.(Sak Onkvisit, n.d., p. 255)”.
Some of the primary sources include office records, interviews, autobiographies etc. I organized
interactive sessions with officials inside KTML.
Mr. Zubair (Accounts Manager) and Mr Asif (Admin Head) greatly facilitated me to get an insight
about companies operations in general along with the current customer needs. That helped me
to get an over view about KTML
SECONDARY SOURCE
“A secondary source of information that has already been collected for other purposes and is
thus readily available (Sak Onkvisit, n.d., p. 255).” Examples of secondary sources are articles,
textbooks, commentaries, and criticism etc.
Internet turned out to be an extremely effective source of acquiring secondary information. Mass
volume information has been placed over the web and to extract the foremost relevant data
from that was an arduous task.
I used
Although primary sources are surely a vital and noteworthy instrument for getting clear idea of
the monetary standing and different performance areas of the businesses, however the
constraints of finding information through primary means limited the benefits of this key source.
The most important limitation is that the representatives, workers and management of the
business don't highlight the data owing to the stiff competition prevailing in the market, thus I
could not rely much on primary data and was left with no choice but to resort to the secondary
sources for acquiring information relevant to my thesis.
Although much of the information needed for the analysis was available online, however,
extracting the most relevant information for the project required loads of time.
Information given on the Company’s websites and in the financial statements are considered
reliable and authentic which made it possible for me to utilize this information in drafting the
research report. I had exerted all my efforts and skills in providing an honest and unbiased view
of the business and financial performance of KTML.
ETHICAL ISSUES
ACCA has provided us with code of ethics that tell us about basic framework of ethics
comprising of
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behavior (ACCA, n.d.)
The research was conducted keeping code of ethics in mind.
Research ethics are usually referred to doing analysis in responsible manner. There are some
ethical areas that were surely of concern to conserve. Issues in specific I considered were:
In a nut shell, RAP produced included only my own judgments and analysis and information
presented has been extracted from authentic and trustworthy means.
FINANCIAL AND BUSINE SS MODELS USED & THE IR LIMITATIONS
SWOT ANALYSIS
“SWOT is abbreviated for strengths, weaknesses, opportunities and threats SWOT analysis is a
tool used to consolidate the results from external and internal business environment analysis
(Ames Cadle, n.d., pp. 14-15).
The method of SWOT analysis is to take the information from an environmental analysis and
separate it into internal (strengths and weaknesses) and external issues (opportunities and
threats) (Investopedia, 2014)”.
This method can be used to highlight factors that can prove advantageous for a business in
obtaining any specific purpose. One does not have to incur high expense for conducting this
analysis. (Pathfinder International, n.d.)
LIMITATIONS
Along with its benefits, there are some limitations too. Conventionally, most SWOT analysis
result only in rank order lists of strengths, weaknesses, priorities, and threats. However, in
conducting a SWOT, it is also useful to begin thinking about actions that can be taken to build
upon strengths or opportunities and rectify or address weaknesses and threats (Pathfinder
International, n.d.)
“A SWOT analysis is a subjective process, which produces a result that reflects the bias of the
participants of the study. In addition, the analysis considers data that is available at a particular
moment and may become outdated quickly. Thus the analysis may lead to business decisions
based on unreliable or irrelevant data (Anon., n.d.)”.
In addition to that one condition can have two effects such as a threat can be an opportunity as
well it depends what is a Company’s attitude towards a situation.
PESTLE ANALYSIS
We use PESTLE analysis to identify forces in the macro-environment that are currently affecting
a business and ones that are likely to do in future (Allen, 2001)
LIMITATIONS
Like all models it have limitations too as it is not simple as the complexity of the environmental
forces at work can be over whelming. The knack is to separate the key factors from important
ones and focus only on important ones (Allen, 2001)
Along with that collecting large amount of relevant data from right sources is difficult, external
factors change at a very fast pace and It ignores internal environment (Daidj, 2015)
RATIO ANALYSIS
“Ratio analysis is based on line items in financial statements like the balance sheet, income
statement and cash flow statement; the ratios of one item – or a combination of items - to
another item or combination are then calculated (Anon., n.d.)”.
Liquidity Ratio.
Activity Ratio.
Capital structure Ratio
Profitability ratio. (Aryasri, n.d.)
For definitions of ratios calculated refer to annexure
LIMITATIONS
“Most of the data for calculating ratios comes from the financial statements. Thus the reliability
of ratios is therefore affected by the reliability of the financial statements themselves. As
financial statements are based on past data they do not provide much insight for future
forecasting. Also the comparability is affected if companies use different accounting policies to
prepare their financial statements, even within an industry companies can have different
characteristics.” (Woolf, 2010)
“By failing to incorporate changing price information, many believe that inaccurate assessments
of the enterprise's financial condition and performance result (Anon., n.d.).”
SAMPLE -3
Part 2
Sources and Method of Information Gathering
Information
When data is processed, organised, structured or presented in a given context so as to
make it useful, it is called information.
(Diffen, n.d.)
Information Source
An information source is a source of information for somebody, i.e. anything that
might inform a person about something or provide knowledge about it. Sources of
information are generally categorised depending upon their originality and their
proximity to the source or origin. There are two main sources of information gathering:
i. Primary Source
ii. Secondary Source
(Wikipedia, 2014)
Advantages
Limitations
It is an expensive source.
It is time consuming.
More number of resources is required.
It is not readily available and
It is not readily accessible.
(Wikipedia, 2014)
Advantages
It is easily accessible.
It is time saving.
It is an inexpensive source.
It is immediately available.
It will also alert the researcher to any potential difficulties.
Limitations
It may not be accurate due to subjective judgement in interpretation.
Its reliability is not guaranteed.
The data in some cases may be outdated.
Data collected is not always to researcher’s need.
(Wikipedia, 2014)
(Prescott, 2008)
(ACCA, 2011)
(SECP, 2014)
2.5 Business and Financial Models used and their Limitations
(Wikipedia, 2014)
Internal
Strengths: characteristics of a business or project that give it advantage over
others.
Weaknesses: characteristics that place the business or project at a disadvantage
relative to others.
External
Opportunities: elements that project can exploit to its advantage.
Threats: elements in the environment that could cause trouble for the business or
project.
(Wikipedia, 2014)
(Investopedia, n.d.)
(Thousand Insights, n.d.)
Advantages
Limitations
(Investopedia, n.d.)
(Wikipedia, 2014)
The easier it is for new companies to enter the industry. How easy or difficult is it
for new entrant to start to compete, which barriers do exist?
Threat of Substitutes:
This is the likelihood that someone will switch to competitive product or service.
How easy can one product or service be substituted?
This is how much pressure suppliers can place on a business. How strong is
the position of sellers? Are there many or only few potential suppliers? Is there a
monopoly?
This is how much pressure customers can place on business. How strong is
the position of buyers? Can they work together to order large volumes?
These forces help to analyse everything from the intensity of the competition to the
profitability and attractiveness of an industry.
(Investopedia Staff, n.d.)
Advantages
Limitations
The model is best applicable for the analysis simple market structures. It gets
very difficult in complex industries with multiple interrelations, product groups, by-
products, and segments.
In the economic sense, the model assumes a classic perfect market. The more
the industry is regulated, the less meaningful insights the model can deliver.
The model is based on the idea of competition.
The model does not consider non-market forces.
(Recklies, 2001)
2.5.2.1Ratio Analysis
Ratio analysis is the quantitative analysis of the financial performance of the
company. Ratio analysis determines trends and exposes weaknesses of a company.
Ratio analysis is based on line items in financial statements like balance sheet, income
statement and cash flow statement; the ratios of one item – or a combination of items –
to another item or combination are then calculated. Ratio analysis is used to evaluate
various aspects of company’s operating and financial performance such as efficiency,
liquidity, profitability and solvency. The trend of these ratios over time is studied to
check whether they are improving or deteriorating. Ratios are also compared across
different companies in the same sector to see how they stack up, and to get idea of
comparative valuations. Ratio analysis is a cornerstone of fundamental analysis.
Financial ratios are useful for understanding the financial position of the company.
Commonly ratios used to measure financial performance are: sales growth ratio, gross
profit margin ratio, current ratio, quick ratio, debt to equity ratio, interest coverage ratio,
earning per share ratio, asset turnover ratio, inventory turnover ratio, receivables
collection period ratio and payables payment period ratio.
(Investopedia, n.d.)
Advantages
(BBC, n.d.)
Limitations
Financial ratios are not useful on stand-alone basis; they must be benchmarked
against some norms like the industry norm, aggregate economy or the
company’s past financial performance.
A company may have some good and some bad ratio, making it difficult to tell if
it’s a good or weak company.
It is difficult to generalize about whether a ratio is good or not.
Ratios in ratio analysis are based on financial statements which is snapshot of
past.
(Investopedia, n.d.)
SAMPLE-4
Primary Sources
Secondary Sources
A primary source is a document or physical object which was written or created during the time
under study. These sources were present during an experience or time period and offer an
inside view of a particular event. Some types of primary sources include:
Compared to secondary research, primary data may be very expensive since there is a great
deal of researcher involvement and the expense in preparing and carrying out research can be
high.
To be done correctly the primary data collection requires the development and execution of a
research plan for e.g. interviews, questionnaires. Going from the start point of deciding to
undertake a research project to the end point to having results is often much longer than the
time it takes to acquire secondary data.
(KnowThis, 2015)
Due to the security reasons in Pakistan, many companies don’t allow outsiders to come in and
have a one on one interview directly with the company representative. For that to be done
requires you to search for references which are difficult to find.
Secondary Sources:
Compared to primary research the researcher needs to take sufficient steps to critically evaluate
the validity and reliability on the information provided.
In many cases secondary data is not presented in a form that exactly meet the researchers
needs. Therefore, the researcher needs to rely on secondary data that is presented and
classified in a way that is similar to their needs.
When using the secondary sources one must exercise caution when using dated information
from the past. With companies competing in fast changing industries, an out of date research
reports many have little or no relevance to the current market situation.
As mention above that I will be only using secondary sources for my RAP Project.
Company Website
Internet and Online business databases
Company Financial Statements
ACCA Books to streamline the research project in terms of models and ratio analysis
The reliability of the information on company’s website might be unreliable if not updated on a
regular basis. We need to ensure that changes are made when necessary and have a
disclaimer with regards to the reliability of the information contained within.
Ratio analysis involves comparing one figure against another to produce a ratio, and assessing
whether the ratio indicates a weakness or strength in the company’s affairs.
Return on Capital Employed: A financial ratio that measures a companys profitability and the
efficiency with which its capital is employed. A higher ROCE indicates more efficient use of
capital. The formulae for ROCE is :
Gross Profit Margin: A financial metric used to assess a firms financial health by revealing the
proportion of money left over from revenues after accounting for the cost of goods sold. Gross
profit margin serves as the source for paying additional expenses and future savings. The
formula for Gross Profit is:
(Investopedia, 2015)
Operating Profit Margin: A ratio used to measure a companys pricing strategy and operating
efficiency.
(Investopedia, 2015)
Current Ratio: A liquidity ratio that measures a companys ability to pay short term obligations.
The formulae is
(Investopedia, 2015)
Quick Ratio: This ratio measure a companys ability to meet its short term obligations with its
most liquid assets. For this reason the ratio excludes inventories from stock:
(Investopedia, 2015)
Inventory Turnover Days: This ratio is used to determine how quickly a company is converting
their inventory into sales. A slower turnaround on sales may be a warning sign that there are
problems internally, such as brand image or the product externally.The formulae is:
(Finance Formulas)
Receivable Turnover Days: The receivable turnover ratio is used to calculate how well the
company is managing its receivables. The lower the amount of uncollected monies from its
operation the higher the ratio will be. A lack of collecting it sooner is potentially a loss of future
earnings. The Formulae is:
(Finance Formulas)
Payable Turnover Days: Payables turnover days indicate the credit worthiness of the company.
High days suggest that there are delayed payments or companies are enjoying longer credit
period allowed by creditor. If there are low days it means lower credit days available to the
company. The formula is
(Investopedia, 2015)
While comparing different companies it is difficult to analyze similar companies and identifying
the problems is some time very difficult due to less information available.
Usually ratios are comparisons of previous history, and its usefulness is very limited if the
company has undergone or is about to undergo substantial changes. Financial Statements are
usually issued after some months of accounting year end, so it doesn’t take affect of inflation
which can lead to under or overstatement of assets and liabilities.
Companies with the worst ratios are existing without any difficulty so the ratios doesn’t provide a
definitive view.
SWOT analysis is a very important and useful tool in evaluating and monitoring equity
investments, developed by Albert Humphrey in the 1960s has become a major model in
business management and investment evaluations.
Figure 1: SWOT Analysis Quadrant, Source: Reference For Business
Components of SWOT:
Strength are the core factors that give the organization an advantage from its closest competitor
or rival. Sometimes it can also be classified as competitive advantage. Strengths of an
organization overall provides us with a complete picture why and how the organization do well.
Weaknesses are those vulnerabilities to the organization which doesn’t able the company to
achieve the competitive edge against its rival. There are many weaknesses around organization
for example labor unions, economic conditions in the sector which organization is operating, tax
burdens.
Opportunities present organization new routes where the company can improve itself in terms of
rivals. Launching a new product in the market can be classified as innovation and opportunity to
attract new clients. A merger or acquisition in other branches of manufacturing or services is an
example of opportunities.
Threats can be classified as “What can go wrong”, it helps to analyze the organization to
evaluate that are there any new products entering the market, are competitors using some low
cost techniques, whether government is enforcing new tax rules. All the factor which leads to
competitive pressure and low economic returns are stated as threats.
(Investopedia, 2015)
The main limitations of SWOT analysis is that it totally ignores basic fundamentals like return on
capital employed, Profit margins, cost of capital and so on. SWOT analysis is a time consuming
activity and it requires updated information in every aspect so it is prone to different potential
errors. SWOT analysis effectively provides you with external and internal factor but it does not
provide you with possible solutions for the identified problems. (Investopedia, 2015)
When evaluating the organization competitive environment, one can use Porter Five Forces
model which include:
Threat of new Entrants: Whenever there is a new entrant in the market it obvious that it will
bring competition and a negative impact on other company’s profitability. This threat varies from
industry to industry and it depends on two things.
The strength of barriers to entry (For example scale economies, product differentiation.
Capital requirements, knowledge requirements and so on)
The responses of existing competitors to the new entrants
(BPP P3 Business Analysis, 2014)pg 52
Threat from Substitute Products: A substitute product is good or service which is provided by
rivals to carter the same needs of consumers. For example video conferencing could be a
substitute for business travel. So it can be assumed that substitute’s products are always
available in the market, which are mainly overlook by the organization.
The Bargaining Power of Customers: Customers are the person who spends money on buying
of goods and services at lower prices of high quality. And to satisfy this want companies may
face decrease in profitability by reducing the prices of the products. This factor depends on how
is the customer position. For example the quantity of products purchased quantity of buyers in
the market, customer buying trends and how crucial the product is for the customers.
The Bargaining Power of Suppliers: Suppliers can also exert for high prices, depends on
whether there are one or two dominant suppliers, new entrants and importance of the suppliers
product.
The competitive rivalry: The intensity of competitive rivalry leads to decrease in profitability of
the industry as a whole. Competitive actions might include price competition, advertising battles,
sales promotions campaigns, new products entering in the market and providing warranties and
guarantees.
The model is best applicable for simple market structures. A detailed description and analysis of
all five forces gets very difficult in complex industries with multiple interrelations, different
products. A narrow focus of such entities bears the risks of missing important information.
In the economic sense the model assumes pure classic perfect market, so If the industry is
regulated the model doesn’t provide meaningful factors. (BPP P3 Business Analysis, 2014)
………………..THE END…………………………