ICAN CASE STUDY- Use of Information (with Audio lecture)

ICAN CASE STUDY- Use of Information

This is an area where it is extremely easy to either gain or lose marks. The use of information marking boxes requires you to use information in the various exhibits in the question paper to justify your figure or point.

Requirements 1 and 2 always have their individual use of information boxes. So, this is an opportunity to score ten marks because each box is worth 5 marks.

Exhibit 1 is usually the letter in which you are told what to do.  No mark has been awarded in past for using information in this letter.

The other exhibits provide information that will help you to answer the question. The financial statements are part of these exhibits. It is these exhibits that you must use.


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Let’s have a look at past Use of Information boxes

MAY 2015	NOVEMBER 2015
•  Uses (Ice Age Manufacturing Limited’s (IAML’s) financial statements -  Profit or loss statement -  Statement of financial position •  Uses  notes  on  IAML’S  financial statements (Exhibit 4) •  Uses information in email from IAML (exhibit 2) •  Identifies wider context for IAML’s business -  A  non-listed  company  (market expectations)	• Uses MNC’s Financial Statements: - Income statement - Statement of financial position • Uses other relevant information (Exhibit 4) • Uses information in Chairman’s statement • Uses information in letter from MNC (Exhibit 2) • Identifies wider context for MNC‟s business - A non-listed company (market expectations)

i.                    NOV 2014

This exam deviated from the trend due to the nature of the requirements.

Section 1 was purely a calculation requirement. So, marks were awarded for following the right steps in calculating the required figure and using the correct numbers to calculate the figure.

 Despite this, there were 2 marks available for using FS information and using information another exhibit. This shows that some boxes can not be predicted with 100% accuracy. The most important thing is to do what the question says.

In section 2, there were available marks for using information in the financial statements and analysing the wider context of the company. You will score the other points if you do what the question says. So, the question is king.

No matter what ICAN sets, there is always a mark for using information in the financial statements for the two sections. That’s a guaranteed 2 marks.

ii.                  How to use information

The information should be used in your explanations. This means in most cases, there is no “correct” explanation. Most marks for explanation are flexible.

Example

In your appendix, you calculated NP margin to be 10%, GP margin to be 5%, ROCE to be 3%.

After transferring these figures to your report, you have to explain them (I will explain this more in another post). Here’s a sample:

Net profit margin

Net profit margin was 10%. This was probably due to the increase in Company XYZ’s profit(you have used information in the profit or loss).

GP margin

Gross profit margin was 5%. This is probably due to the fact that Company XYZ’s workers went on strike(this information must be in another exhibit for you to score another mark).

Before you solve requirement 1 or 2, jot down the list of exhibits somewhere(excluding exhibit 1). Tick this list as you use information in these exhibits.

iii.                Notes

For the purpose of this exam, they are not part of the financial statements. So, just assume the notes are a different exhibit. This is because there might be a separate mark for using information in it.

iv.                Financial statements

This is divided into SOP/L and SOFP. If you use information in the SOP/L, you score 1/2. The same applies to information in the SOFP that you use.

One thing I want you to note is that in a ratio-analysis section, you automatically use information in the financial statements. This is because some ratios use SOFP and SOP/L figures. For example, ROCE picks PBIT from SOP/L and Capital Employed from SOFP.

v.                  Wider context

This section of the report doesn’t have to be long. What you do here is to look at the company from a strategic point of view.

The companies in MAY and NOVEMBER 2015 were private companies, so, a mark was awarded for stating that they under less pressure to pay dividend/make high profits, e.t.c.

The wider context for the company should be explained in requirement 1.

The wider context for the company’s business environment should be described in requirement 2. You will explain how the company’s competitors, industry, customers, e.t.c. will be affected by anything the company wants to do. 
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