I hate section 2 DFS/PEV

Elsie

Does anyone else hate section 2 (ratio analysis)? Just as I think I've got it cracked I try another past paper which gives some different reasons for the movements in the ratios. There just seems to be so many answers. Can we still pass this section if our explanation for the ratio variances differ from the "model answer"?

I've just done a question in DFS where the costs reduced but so did the net profit and the trade receivables days increased. The model answer was to increase sales price and reduce costs further and reduce trade receivable days by improving credit control. However my employment experience leads me to believe that the sales price can only be as high as the market can stand and if costs are reduced too low then staff can be demotivated leading to increased receivables days because credit control isn't being performed efficiently. Does anyone know whether I would get any marks for this interpretation?

sdv

Elsie wrote: »

Can we still pass this section if our explanation for the ratio variances differ from the "model answer"?

Yes you can provided you support your answers with a logical rationale.

Model answers are a guide. The answers are not written in stone!

Section 2 of DFS/PEV is all about understanding accounts (ratios) and it's implications on the business.

To answer section 2 write your analysis in the following way

1 What happened?
2 Why it happened?
3 What are it’s implication on the business as a result of the above 2 questions?
4 How can you improve the ratio or the implications mentioned above.

By doing the above you can logically argue………

Elsie wrote: »

……………….. that the sales price can only be as high as the market can stand and if costs are reduced too low then staff can be demotivated leading to increased receivables days because credit control isn't being performed efficiently.

….and you can achieve a competency for this section.