Business Model (from your coursework seminar, page 053)

Perhaps you might want to draw your own "infographic" for your
coursework company when you attempt section (ii). This is a very
powerful way of explaining the Business Model. I am attaching the
Dominos Pizza example. If you do your own diagram you MUST state that
you have done it yourself and FOOTNOTE reference where you got the
information from. This will allow the marker to give YOU credit for the
work that YOU have done (and not copied).
Brief examples of writing (From Fundamental Analysis Module Guide
page 059 060)
Example of a third
eg. Revenue grew 2.0235% then declined 5.789%: representing average
growth of 4.0552937%.
This is not meaningful - it's technically "correct" - but there are simply too
many numbers and percentages.
Revenue rose like smoke from a thundering steam train (in the first three
years) but then declined as if the train vanished past the horizon..
Is beautiful prose but lacks any numbers
Example of a low 2:2
eg. Revenue growth over the period under review averaged a steady, but
unremarkable, 4%.
This is explicit, and combines numbers and narrative in an appropriate
manner.
Example of a high 2:2
eg. Operating profit has risen from 100 million to 150 million. This is
largely due to two factors:
increased revenue and stable gross margins have driven gross profit up
by 70 million, and
indirect costs have risen by 20 million.
Notice that this writing clearly shows that the student understands how
the Income Statement works: realising that operating profit is a function
of gross profit and indirect costs - and that gross profit itself is a function
of revenue and gross margin.

Example of a low 2:1

eg. Operating profit has risen from 100 million to 150 million. This is
largely due to two factors:
increased revenue and stable gross margins have driven gross profit up
by 70 million, but
indirect costs have risen by 20 million.
Notice that the difference between a high 2:2 and a low 2:1 here is simply
one word - the writer of the low end 2:1 has highlighted that one variance
is favourable and the other variance is adverse by using "but", whilst the
2:2 student has sloppily used "and". The basic analysis looks the same but the 2:1 student is able to demonstrate that they recognise the nuance
in the variances by use of appropriately subtle language.
FIBD Module Guide 059

Example of a high 2:1

eg. The most interesting yearly variance occurred in 2010 when retail
sales have rose by 76.3 million. Page 6 of the Directors Report for 2010
explains that the majority of this rise in Retail sales was because Next
increased their number of stores from 510 to 517 stores in the year: this
accounted for 70.3 million of the 76.3 million increase [details of this
calculation are given in the lecture FIBD.110]
Note that the calculation is used to prove the assertion, and that the
calculation is not a standard FIBD calculation - it is instead an example of
embedding an appropriate sense check into the analysis.
Calculations that carry a sense of proof, along with robust quantification
are worthy of strong marks.
Example of a First
Notice that this builds on the basic strong 2:1 analysis but adds analytical
verve and criticality.
eg. The most interesting yearly variance occurred in 2010 when retail
sales have rose by 76.3 million. Page 6 of the Directors Report for 2010
explains that the majority of this rise in Retail sales was because Next
increased their number of stores from 510 to 517 stores in the year: this
accounted for 70.3 million of the 76.3 million increase [details of this
calculation are given in the lecture FIBD.110]
However, the Directors concede that "Markdowns" depressed Retail sales
by 33m, but an extra week of trading largely counteracted this [details
of this calculation are given in the lecture FIBD.110]
It is interesting to note that according to the Key Performance Indicator
amounts on page 12 of the 2010 Annual Report the total retail area
increased by 4.7%, however Retail sales only increased by 3.5%. It can
be shown that the average sales per square foot decreased from 399 per
square foot to 395 per square foot [details of this calculation are given in
the lecture FIBD.110].
Even though the business is showing increasing revenue, the revenue per
square foot is actually slightly decreasing. The business is expanding
physically but at the same time is experiencing a slight decline in sales
per square foot. This decline in sales per square foot, combined with the
revelation of increased "Markdowns" being offered in the year suggest a
business that is fighting very hard to maintain base sales whilst
continuing to slowly physically grow the business.