ICAEW Advanced Case Study
Avoiding the pitfalls of Requirement 1: Financial Analysis
The examiner tells us that this requirement can be the downfall for students who are unsuccessful in the Advanced Case Study exam. This is not because it is too difficult but because candidates spend far too long on it.
So, how can candidates prevent themselves falling into this trap? Following effective analysis of the Advanced Information, candidates should know ‘the story’ behind the figures.
Rolling Stores (November 2014)
The company was in the logistics business and had 3 revenue streams being Haulage, Warehousing and Courier Services.
Haulage and Warehousing were relatively mature and Courier in the growth phase, having been launched in May 2012.
The company was seeing growth in revenue but falling margins, the industry demanded continual investment in new vehicles and there was a need to invest in logistics IT to improve planning and efficiency. RS financed the majority of NCA additions via finance leases but was also carrying a £3.5m loan on the SOFP.
The company was reliant on a few customers. Kentree (household appliances brand) accounted for 25% of Haulage work 75% of Warehousing. Buildwell (Builders merchants/DIY products) accounted for 65% of Courier services work. Therefore, candidates should be thinking RS should not upset these customers and work to preserve these relationships – easy marks; needs to be said in the exam if the relationship is at all in jeopardy.
To make sense of this business information, a candidate needs to appreciate the ‘wider context’ in which this business is operating.
The economy in the UK was showing signs of recovery – and so logistics was seeing an uplift, fuel prices were falling (obviously important for haulage/courier firms), courier market was expected to grow significantly (due to increased on-line shopping activity) but the haulage and courier markets were very competitive.
This context needs to be blended with the written analysis of the numbers – helping the user of the report understand why the numbers have moved or not and why your judgements and recommendations are appropriate.
The exam itself
The candidate now knows the story and therefore, when the numbers perform as expected, the reasons are available to be added to the report.
The requirement asked candidates to analyse PBT, analysing the main items on the statement of profit and loss.
- Revenue – TOTAL first (always) and drill down (ie explanations as to why the total revenue figure has changed) by stream (always do revenue mix as well – it’s a given). Courier saw massive growth (main driver of total revenue growth) – expected but still needs stating.
- GP – absolute movements but the story is always in the margin (it continued to fall – expected – rising costs and inability to pass on in prices due to competitive nature of market). Drill down (max twice) – what cost of sales have a story? 1. Fuel (prices changing, key cost) and 2. agency/subcontract labour (because of the courier work).
- OP – Margin continued to fall – expected. No real story behind the admin expenses from the AI so no where to drill, other than the allocation was dubious (from the AI we were told overheads were allocated for ‘ease of preparation’!)
- PBT – margin falling – at 30 September 2014 only 0.2%!! Candidates need to get excited by this – this is very critical and unsustainable! Drill down – interest payable – highly geared and finance leases.
The above problems then lend themselves to candidates giving commercial advice (recommendations).
The examiner always throws in what he calls a ‘tutor proof twist’ – something we are unable to prepare for fully. Nevertheless, as long as candidates stay calm, the ‘twist’ is never overly complex. The key to staying clam is being ready for the numbers that you can foresee. Understand the marking grid and play the game by the examiner’s rules. Attempt past papers and then review thoroughly; two thirds of requirement 1 is quite formulaic – candidates just need to know the formula.
Reed Business School
Welcome to our dedicated ACA Case Study website!
UPDATE (19 December 2017) - New London Weekend course dates announced!
As our London Saturdays course has sold out in record time, we are pleased to announce a second London Weekend course (the imaginatively-entitled London Weekend Course 2). Please click here for further details of this course, which will run on 2 Saturdays and 3 Sundays.
UPDATE (15 December 2017) - Results day!
After a rather tricky Requirement 3 in the R4 Limited November 2017 Case Study, we were delighted to see our classroom tuition students achieve our usual high pass rate - 98% overall and 99% amongst students retaking the examination with us after failing with another provider.
We have now released full details of our July 2018 classroom tuition courses so please click here for further details.
We are in the process of updating our Feedback Wall for further genuine comments received from our classroom tuition course students at the November 2017 sitting. Please click here to read a selection of comments received from our students over the last few sittings.
The fully updated July 2018 edition of Cracking Case is due for release in March 2018. Click here for further details.
UPDATE (15 September 2017) - Release of November 2017 edition of Cracking Case
We are pleased to announce that the fully updated November 2017 edition of Cracking Case is now available to purchase.
We have carefully updated the book for the main learning points arising from the markscheme for the July 2017 Case Study (Piccolo Limited) and have further improved our popular Planning & Reminder Sheets with further ideas from our July 2017 classroom tuition courses.
UPDATE (8 September 2017)
We are very pleased to have been informed of another ICAEW Case Study prize won by our students. Jordan Raiye placed first in the ICAEW North East region and first in KPMG nationally with a very impressive score of 86%! Well done Jordan!
This is now our fourth ICAEW prize for Case Study in the last few years - click here to read about our other prizewinning students.