HOW TO TACKLE EVALUATION & ANALYSIS IN THE RAP

Failure in the Evaluation, Analysis & Conclusions section continues to be one of the
most common causes of failure (along with Information Gathering and Referencing).
However whereas Referencing is a discipline with distinct rules that can be read,
learnt and applied, evaluation is about recognising the right way of addressing
analysis and presents more of problem to overcome unless you are given proper
direction. So whether you are still working on your first submission or have received
the bad news that you have failed this section, learning how to do successful
evaluation and analysis is a vital element if you are to achieve a pass.

This article therefore aims to look at what the OBU RAP entails in terms of
evaluation and will try to guide you into adopting the correct approach to this. I will
look first at the most common topic, Topic 8 but will then turn in Part II to the other
topics and suggest ways that you can try to ensure that you comply with the
assessment criteria and deliver what is expected.

First though I want to draw attention to this brief paragraph from the OBU Information
Pack (p.22) that is critical to this subject and is probably overlooked by most
students, but it sums up everything that is required:

In order to produce a successful RAP you have to evaluate and / or analyse

information from a range of sources. This means creating some meaning of what you
have found, or making a judgment or coming to a conclusion. If you only report the
information that you have found or generated, you will not pass the RAP. The ability
to evaluate and / or analyse information is a very important graduate attribute and
the grade that you are awarded for your RAP will be significantly influenced by ‘how
well’ you demonstrate your evaluative and/or analytical skills in your RAP.

There are a few key words and phrases here that I shall return to in a
moment: ‘create some meaning’; ‘making a judgment or coming to a conclusion’ but
first I want to home in on the central theme here – ‘If you only report the
information that you have found or generated, you will NOT pass the RAP.’

Let’s start at the beginning of Part 3 Finding and Analysis. I advise most students to
do their models first. The reason for this is that the models should not be seen in
isolation. Assessment Criterion 1 is ‘Understanding of Accountancy and Business
Models’ and Assessment Criterion 2 is ‘Application of Accountancy and Business
Models’ which means that you need to state a relevant model(s) and then apply it
(them) to your chosen organisation. Most students do not have a problem with this
but then having ‘ticked the boxes’ for this they then move on to the Financial Analysis
(Topic 8). The problem is in the majority of cases they see this as a separate
requirement – what they fail to understand is that the business and financial
analyses are related – not just in theory but in actual practice in the real world.

Evaluation in connection with Topic 8

(The overall approach I am about to outline below is also applicable to Topic 5 as

well and also to a certain extent to Topic 15)
The directors of companies are keen to cash in on their strengths and opportunities
and want to overcome weaknesses and threats and furthermore want to make the
best of favourable environmental factors and use them to their advantage or take
steps to minimise the effect of the disadvantageous factors. Only foolhardy
managers of companies are arrogant enough to assume that if they are market
leaders they will continue to enjoy such an omnipotent advantageous position. Look
at Nokia – in a matter of about 5 years they slipped from being the top company for
mobile handsets to being taken over by Microsoft, and Tesco the leading UK
supermarket now finding that their position is being challenged not just by long
standing rival Sainsbury’s but relatively newcomers to the UK market, the German
duo Lidl and Aldi. Maybe if Nokia had recognised technological factors and the
impending importance of smart-phones they would have survived. If Tesco had really
embraced the importance of economic factors on disposable incomes maybe they
may have been able to take steps to reduce their margins to retain hard pressed
customers before they left in droves to go to Lidl and Aldi. Instead now they are
seeing their profits plummeting as a consequence, and they are having to fight back
from the position of the weaker party rather than be the leader. Hindsight is a
wonderful thing but both of these cases illustrate that all companies exist in a very
dynamic environment and this is something that students need to appreciate.

So what does this signify in terms of evaluation? It means that you need to apply
your SWOT /PESTLE factors to your company when you are assessing their
financial results. You also need to read the CEO /Directors reports as they will be
keen to impress on shareholders that they are alert and aware of environmental
factors and furthermore the decisions they have made and strategies employed are
based on these and management’s own assessment of the company’s SWOT.

Just read any reputable business pages (e.g. BBC, FT, the Daily Telegraph or Times
in the UK) and you will see how companies change their strategies or react to
environmental factors. On just one day recently I read that Coca-Cola having
previously rejected a UK government initiative on nutritional labelling had changed its
position after “having gauged British consumers’ views on the scheme” and how
Laura Ashley is tending to move away from fashion and focus more on home
accessories (i.e. overcoming a weakness and building on a strength). Admittedly
Coca-Cola’s changed attitude is unlikely to greatly influence their sales much in the
UK (but it may have done if they had done nothing) however it does illustrate that no
company can afford to stand still and ignore public opinion.

Now going back to Laura Ashley – just for interest after reading the BBC Business
news brief article I then downloaded their latest Annual Report for year ended
25th Jan 2014. It seems that retail space in the last 12 months had actually reduced
by 2% and they had closed 3 UK stores and I also learned that online sales
accounted for 16% of the UK sales and the annual report gave me some segmental
analysis. When I read the CEO report he commented that both Fashion and
Furniture had shown a downward trend in 2013/2014 (but he outlined plans to halt
this slide) however home accessories and decorating products “continue to be well
received by our customers”. (And I discovered all of this in about only 10 or 15
minutes!). So back to the BBC article: Laura Ashley has just reported its half-year
profits for 2014/2015 and stated that compared with the same period last year that
profits were up 15%. I am now ‘armed’ with some quality information so if I were
doing a 2015 RAP on this company and starting to discuss profit I would now be able
to attempt a sensible analysis grounded in facts and reality. I would be able to write
something meaningful that showed I had researched and used the information
appropriately. Assuming this trend continued – and it seems that in the 5 weeks into
the 3rd quarter the “like-for-like sales are up 8%” (BBC, 2014). I would most likely be
able to comment as follows:

‘In spite of the continuing fall in sales in two of its main segments, Furniture and
Fashion, the management are now consolidating their range in key areas within
these segments: beds for the former and quality, style and price in the latter, and
focusing on their two other segments, home accessories and decorating lines (CEO
statement, 2014). This strategy of concentrating on homeware has proved extremely
successful: profits have risen by 15% in 2014/2015 (BBC, 2014) in spite of a
significant 2% reduction of retail space the previous year (Laura Ashley, 2014).”

When it came to discussing operating margins I would also be able to bring in the
store closures as one of the factors helping reduce operating costs and therefore
strengthening margins, and another quick search of the Telegraph business pages
told me that in 2013 Laura Ashley had been squeezing suppliers to reduce their
margins. Furthermore in the investor section I would be able to draw all of this
together and say that earnings per share have increased significantly because of the
strategies management had undertaken and the market price of the shares have
risen by 9% (BBC, 2014)

[Remember this is at the moment hypothetical as I am making assumptions that the

current trends will be maintained but is meant as an example of how to approach
producing a sensible, reasoned analysis and evaluation. There is also a lot more I
could write with a bit more research as I have a few avenues I would explore further
e.g. I could look at how the online sales over the 3 year period had increased as
there probably is some info in the annual report about this, I could calculate some
appropriate ratios ‘sales and/or profit per sq.m of retail space’ – but remember I did
my little bit of ‘analysis’ above based on just 15 mins of research!]

Now look at this – it is a typical extract from a student’s piece of work.” [I am giving
you much just enough for you to get the ‘flavour’ as the whole piece was written in a
similar manner]:

“The operating profit of ABC stood at GBP 26,608 million (2012: GBP 24,721 million,
2011: 23,111 million); having increased by GBP 1,887million (2012: 1,610; 2011:
1,306 million) representing an increase of 7.63% (2012: 6.97%; 2011: 5.99%)…. The
increase in the profit is continued improvement in operating efficiency margin”

Returning to OBU’s requirements: you need to ‘create some meaning’; ‘making a

judgment or come to a conclusion’. I think I hardly have to ask at this point – but
which fulfilled these criteria and which only ‘REPORTED the information found or
generated’? Which made more sense? Which actually told you something
meaningful about the company? Which communicated information to you effectively?
Which paragraph was easier to read and understand? Which do you think is likely to
impress a marker? And of course, most importantly which do you think (if it continued
in the same vein) is likely to get a pass grade and which a fail?
So when you come to doing your analysis for Topic 8 (or 5) and Topic 15 too, you
must bear in mind that you need to EXPLAIN not just describe differences – anyone
can use a calculator or an Excel spreadsheet and come up with figures! And so now
you can probably see that the student report failed because they had not created
anything meaningful, they had not made a judgment or come to any conclusion.
Quite simply all the student had done was just reported what they had found.

Most of your information will come from the Annual Reports too but as I have
demonstrated you need to look at other sources and think about what the numbers
and information you find actually MEAN. In terms of time, I probably didn’t spend
much more time doing my little extract than the student did inputting all of those
dreadful numbers into a spreadsheet /calculator!

A couple of other things I need to point out: first when you learn about ratios in text
books you must appreciate that you are being presented with just the bare rudiments
– it is like trying to learn to drive from a book – the basics may be correct but the
approach needs to be adapted to the situation. At best a driving manual can only be
a guide – it cannot deal with every situation you will find yourself in when you are
actually behind the wheel – so too with ratio analysis – it has to be applied flexibly to
the particular context. Ratios MUST be appropriate to the industry otherwise they are
pointless – like calculating the Quick Ratio for a service industry like an airline. Think
about it: what are airlines selling? Is it a tangible product? No! So inventory is never
going to be a significant factor for a service industry (but it will be very important for a
manufacturing organisation). Again in the retail sector students trot out liquidity ratios
and make pronouncements about how the organisation is carrying too much stock –
without thinking about what is the business of this company? Answer: Selling the
stock on its shelves at a profit! So if it cut back on this they would go out of business!
What is far more useful is to know how well the retail space is being utilised
(remember I mentioned above about calculating sales or profit per sq.m?). How
much more appropriate it would be if students when they look at the annual report
were to consider the more relevant key performance ratios that are actually used in
these businesses. They would then greatly improve the quality of their analysis by
demonstrating that they had thought about the particular company and the
appropriate ways of measuring its performance (rather than calculating every ratio in
the book whether it is relevant or not!)

And one final point “you have to evaluate and / or analyse information from a range
of sources”: this means that you should NOT rely exclusively on the annual report
for your information. Management are always going to trumpet their successes and
try to ‘bury’ the bad news. Just using the annual reports does not really demonstrate
a full range of research skills and you will not be producing work that shows
evidence of a critical thought or objectivity and according to the Assessment Criteria
3 “Little of no critical evaluation” is one of the grounds that leads to a fail (and “very
few information sources used” will often mean a fail for Information Gathering too)

When it comes to, evaluation and analysis in the RAP, correct approach is everything
– as the Information Pack citation above says:
“…the grade that you are awarded for your RAP will be significantly influenced
by ‘how well’ you demonstrate your evaluative and/or analytical skills in your
RAP.”

Once YOU recognise the reality of this when you come to evaluate and analyse the
company and its comparator’s performance you should be able to appreciate that
evaluation means making sensible appropriate comments based on a range of
available information.

Furthermore you will probably find that researching and piecing bits of information
together and making something ‘meaningful’ can be very satisfying and enjoyable
and probably will go down well with your marker – words that can never be used to
describe the act of number crunching and drowning the reader in a ‘sea’ of
meaningless numbers and throwing lots of ratios in (whether they are appropriate or
not), just for ‘good’ measure!

Source: Opentuition.com

REGISTERED MENTOR: CONTACTS:

Mbecha Benedick Etiandem Phone: + (237) 69786 0889

(ACCA Member; Registered Mentor; OR + (237) 67990 6692

BSc in Applied Accounting; Senior Auditor). Email:

etiendem@gmail.com