INTRODUCTION
1. General
Analysis of financial statements (balance sheets and profit-and-loss statements) is an
important tool for examining a company’s situation, including prospects for growth and
survival, and future growth. Today, this tool is also gaining importance at the levels of
economic activities and the economy at large. Thus, many countries are drawing up
statements to examine their financial situation and behaviour.
The new system of national accounts (SNA93) requires the presentation of financial data
of manufacturing establishments. SNA93 stresses the importance of compiling balance
sheets for the economy and for its various sectors, thereby presenting the economy’s
assets and liabilities. This addition of balance sheets facilitates a more probing analysis of
economic development – households’ behaviour, distribution of national wealth,
connections among the various economic sectors, profitability, etc. It also allows analysts
to perform additional tests of the consistency and integrity of the accounts, thereby raising
the quality of the estimates.
In contrast to a profit-and-loss statement, which expresses the business’s results in a given
period of time, the balance sheet reflects the condition of the firm on a given date. As part
of the development plan for the creation of balance sheets for the economy as a whole,
and in cognizance of the importance of this information in understanding manufacturing
data, it was decided to gather balance sheet statistics as of 1995.1
All the balance sheets received were adjusted to changes in the general purchasing power
of the NIS, on the basis of professional opinions from the Bureau of Certified Public
Accountants in Israel.
In the 2003 survey, the balance sheet data of manufacturing establishments are shown for
2002 and 2003, at the level of aggregated divisions. These data complement the data in
the profit-and-loss statements that are issued as part of the Manufacturing Survey.
Additionally, tables of the balance sheet components are shown in percentages for 2002 and
2003. The resulting time series makes it possible to examine trends and creates an initial
infrastructure for financial analysis.
The main financial ratios for 2002-2003 have also been calculated, although analysis by
manufacturing divisions is problematic in the Israeli economy since various
establishments, even within one division, differ in number of employees, extent of
revenue, exports, profitability, and other parameters. This, of course, affects the financial
ratios and makes it more difficult to perform a division-level analysis. Nevertheless, the
2003 Survey continues to examine various financial ratios at the level of aggregated
divisions, to make it possible to continue monitoring the trends that were found in future
years, since only long-term analysis makes it possible to state that a trend indeed exists.
The industries were aggregated into seven manufacturing divisions.
1
See Central Bureau of Statistics, Financial Statements of Manufacturing 1995, Current Statistics 12/1999,
Jerusalem, 1999.
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2. Main Findings
Findings for 2003
Assets: Total assets in 2003 of manufacturing establishments employing 5 or more
employed persons totaled approximately NIS 249 billion (higher by 4% than that
calculated in 2002 at 2003 prices).
The assets to employed person ratio was highest in the “Chemicals and Plastics”
manufacturing division and lowest in the Textiles, Apparel, and Leather division (see Table
C).
Current assets: In 2002-2003, the Electricity and Electronics divisions had the highest rate of
current assets, which reached 63% in 2002 and 58% in 2003; compared with the average of
total manufacturing, which reached only 47%.
A high rate of current assets was also found in the Metals and Machinery divisions (52%).
The lowest rate of current assets in manufacturing was found in the “Construction” divisions
(34%).
Long-term investments and accounts receivable: In 2003 a rise in the rate of long-term
investments and accounts receivables occurred in most divisions. Their rate out of the total
balance sheet also rose in most divisions. The highest rate of investments in manufacturing
was found in the Paper, Printing and Miscellanneous divisions. This group of divisions also
had the highest rise in the rate of long-term investments and accounts receivables in 2003,
compared with 2002.
The lowest investment rates were found in the Construction Products divisions (18%).
Fixed assets: In 2003 fixed assets in all the divisions remained stable, compared with 2002
(approximately NIS 65 billion). The rate of fixed assets in the total balance sheet also
remained stable (approximately 26%).
As in previous years, the rate of fixed assets in 2003 was highest in the Construction Products
divisions. In this group of divisions, the rate of fixed assets to total balance sheet reached
48%, compared with an average of 26% in the entire industry.
The lowest rate of fixed assets was found in the Electricity and Electronics divisions (19%).
The rate of fixed assets per employed person (see Table C) was highest in Construction
Products and in Chemicals and Plastics; whereas the lowest rate was found in Textiles,
Apparel, and Leather and Paper, Printing n.e.c. These findings correspond to those in the
Fixed Gross Capital Stock in Manufacturing Survey,1 which also indicates that the
Construction Products division has a high rate of fixed assets per employed person, mainly in
two industries: Mining of Sand and Minerals and Quarrying of Stone, and Non-Metallic
Mineral Products.
Short-term liabilities: A high rate of finance from short-term liabilities (which are more
expensive than long-term liabilities) was found in almost all divisions. The highest rate of
current liabilities was found in the Electricity and Electronics divisions – 46%, higher than the
average in the entire industry (a rate of 38%). High rates were also found in Textiles and
1
See Central Bureau of Statistics, Survey of Fixed Gross Capital Stock in Manufacturing, 1.1.1992, Special
Publication No. 1098, Jerusalem, 1999.
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Metals and Machinery. The lowest rates in the industry were found in Chemicals and Plastics
(29%).
Long-term liabilities: The rate of long-term liabilities was highest in Paper, Printing n.e.c. –
38% compared with 19% in the entire industry.
The lowest long-term liability rates in manufacturing were found in Food as well as in
Electricity and Electronics.
Shareholders’ equity: The rate of equity, funds and surpluses was highest in the Chemicals
and Plastics divisions (55%), and Construction Industries (50%); also higher than the average
rate of the entire industry, in which a rate of 43% was recorded.
The rates of equity were lowest in Paper, Printing n.e.c. In these divisions the rates of equity
reached 23%, and it is lower than the rate in these divisions in 2002 (28%).
Ratios:
Current ratio: The highest current ratio in the 5+ size group of establishments was found
in Chemicals and Plastics (1.4%). This group is characterized by relatively high rates of
current assets; however, the effect of the current assets factor, which is significantly
higher than the division average, causes the highest rate of current ratio to be found in this
group.
The lowest current ratio was found in the Manufacture of Paper and Paper Products
divisions.
Equity structure ratio: A high rate of finance provided by foreign debt (financial leveraging)
was observed in the divisions of Paper, Printing n.e.c. and Metals and Machinery (due to the
high rate of long and short-term liabilities).
The lowest rates of foreign debt in manufacturing were found in the divisions of Chemicals
and Plastics and Construction.
Assets turnover ratio: The assets turnover ratio was highest in the Food and Textiles,
Apparel, and Leather divisions; and the lowest assets turnover ratio was found in the divisions
of Construction and Metals and Machinery.
Profitability: The highest operating profit to revenue ratio was found in Building Products;
whereas the lowest ratio was found in the Textiles, Apparel, and Leather division.
The highest operating profit to capital ratio was found in Paper, Printing and Miscellaneous.
The operating profit to equity ratio was lowest in the Chemicals and Plastics divisions.
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3. Definitions and Explanations
3.1 Survey Population
The survey population includes all establishments that were active in 2003 and
employed 5 persons or more, according to the Manufacturing Survey sample.
The balance sheets were adjusted for inflation and presented in December 2003
prices.
In the course of the 2003 survey, data were received from 561 manufacturing
establishments. The output of all the establishments in the survey constitutes 51% of
the output of all manufacturing establishments employing 5 or more persons.
Regarding the rest of the establishments, which did not provide adjusted balance
sheets, the data were weighted and imputed (see Chapter 4). Thus, the data presented
in the tables below include imputed figures for establishments that did not provide
adjusted balance sheets.
Table A. Output of establishments for which a statement was received,
by aggregated division
2003
Aggregated
Division
Establishments – total
(N=561)
Percentage of
the division’s
output
Total
Food
Textiles, apparel
and leather
Paper, printing n.e.c.
Construction
Chemicals and
plastics
Metals and
machinery
Electricity and
electronics
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Distribution
of output
51
100
72
15
36
4
45
7
55
7
68
26
28
13
37
28
Table B. Data on Employment, Labour Cost, Revenue, Profit (1), and Total
Balance Sheet in Establishments with 5 or More Employed Persons, by
Aggregated Division
2003
Aggregated
division
Total
Employed
persons
(thousands)
Employees
(thousands)
Labour cost
(annual
average per
employee
in NIS)
Total
manufacturing
revenue(2)
(NIS millions)
Profit(2)
and return
on equity
(NIS
millions)
Total
balance
sheet (NIS
millions)
315.5
313.8
138,693
193,880
23,331
249,221
Food
52.9
52.5
101,355
29,623
3,088
27,530
Textiles, apparel
and leather
23.0
22.7
81,413
8,200
801
9,550
Paper, printing
n.e.c.
34.3
34.1
99,328
13,492
1,335
19,747
Construction
24.1
23.7
124,063
12,965
2,095
20,772
Chemicals and
plastics
43.8
43.8
148,180
48,754
6,677
65,923
Metals and
machinery
59.1
58.8
121,012
26,249
2,917
39,284
Electricity and
electronics
78.3
78.2
209,971
54,596
6,420
66,415
(1) Data are based on findings of the 2003 Manufacturing Survey, which are presented in this publication.
(2) In December 2003 prices.
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Table C. Data on Revenue per Employed Person, Profit and Return on Equity
per Employed Person, Assets per Employed Person, and Fixed Assets
per Employed Person(1), by Aggregated Division
2003
Aggregated division
Total
manufacturing
revenue(2)
Profit(2) and
return on equity
Total assets
Fixed assets
Average per employed person in NIS
Total
614,518
73,951
789,924
205,474
Food
559,977
58,365
520,416
176,125
Textiles, apparel
and leather
356,501
34,814
415,217
107,478
Paper, printing
n.e.c.
393,352
38,927
575,714
145,394
Construction
537,983
86,909
861,909
411,328
1,113,112
152,442
1,505,091
381,689
Metals and
machinery
444,150
49,356
664,704
149,848
Electricity and
electronics
697,267
81,987
848,212
160,460
Chemicals and
plastics
(1) Data are based on findings of the 2003 Manufacturing Survey and the balance sheet data.
(2) In December 2003 prices.
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3.2 Explanations – Structure and Components of the Balance sheet and
Financial Ratios
a. Structure of the balance sheet
The most frequent items on the balance sheet are the following:
On the assets side – current assets (cash and cash equivalents, short-term investments,
accounts receivable and debitory balances, and inventory), long-term investments and
accounts receivable, fixed assets, other assets and deferred charges.
On the liabilities and equity side – short-term liabilities, long-term liabilities, and
shareholders’ equity.
Assets
Current Assets
This item includes assets that presumably will become cash within the coming year,
cash and cash equivalents, short-term investments, accounts receivable, debitory
balances, and inventory.
Long-Term Investments and Accounts Receivable
The long-term investments and accounts receivable item includes investments of
more than a one-year term – investments in subsidiaries and affiliated companies,
long-term investments in securities (shares and bonds), excess earmarking of reserves,
long-term debts, etc.
Other Assets and Deferred Charges
This item includes intangible assets such as goodwill, patents, and copyrights, as well
as deferred charges – miscellaneous expenses spread over several years, such as
incorporation expenses, expenses of share and bond issues, etc.
Since this component constitutes a small percentage of the total assets, it was
combined with long-term investments and accounts receivable.
Fixed Assets
This item includes physical assets such as land, buildings, machinery, motor vehicles,
and equipment. Fixed assets are shown at cost, adjusted for inflation and net of
accumulated amortization.
Liabilities and Owner’s Equity
Current Liabilities
Current liabilities are those due within one year of the balance sheet date. They
include short-term loans, suppliers and other accounts payable, notes and checks due,
expenses payable, income received in advance, customer payments received in
advance, current maturities of long-term loans, etc.
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Long-Term Liabilities
Long-term liabilities are those due more than one year after the balance sheet date.
They include loans from various sources such as banks, subsidiaries and affiliated
companies, bonds issued by the company, owner’s loans and reserves.
Shareholders’ Equity
This item includes the company’s equity (paid-up share equity) and equity reserved
for various purposes or unforeseen circumstances. The equity item also includes
surpluses, i.e., net undistributed profit.
b. Financial Ratios
The analysis of financial ratios included four types of ratios: liquidity, equity
structure, operating efficiency and ratios measuring earnings.
Liquidity Ratios
Liquidity ratios examine the company’s ability to meet its liabilities in the short-term.
Our analysis included one ratio – the current ratio.
Equity Structure
Equity-structure ratios examine the establishments’ sources of finance. We examined
three ratios: debt to the total assets (financial leverage), the ratio complementary to it
– owner’s equity to the total assets (financial strength) and debt to owner’s equity.
Operating Efficiency Ratios
This ratio examines how effectively the various establishments utilized the various
assets available to them. One ratio was examined: the assets turnover ratio. The
higher the revenue turnover relative to assets, the greater the efficiency.
Profit Ratios
We examined three ratios that measure profits: operating profit to revenue examines
the marginal profit from each sheqel of revenue; operating profit to owner’s equity
examines profit on investments of owner’s equity; and operating profit to assets
examines the rate of profit obtained by the establishments from all funding sources –
i.e., owner’s equity as well as foreign debt.
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3.3 Definitions and Formulas
Financial Ratios
Liquidity Ratios
1)
Current ratio =
Total current assets
------------------------Current liabilities
Equity Structure
1)
2)
3)
Debt to total Assets =
Total liabilities
-----------------Total assets
Owner’s equity to total assets (complementary ratio to 1) =
Debt to owner’s equity =
Shareholders’ equity
----------------------Total assets
Total liabilities
-----------------Shareholders’ equity
Operating Efficiency Ratios
Revenue
Assets-turnover ratio = -------Assets
Profits Ratios
1)
Operating profit
Operating profit to revenue = -------------------Revenue
2)
Operating profit to owner’s equity =
3)
Operating profit to assets =
Operating profit
-------------------Shareholders’ equity
Operating profit
-------------------Total assets
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Revenue
Revenue is calculated from a profit-and-loss statement, and includes income from
industrial activity (revenue to the domestic market, exports, jobs and repairs and
production of fixed assets for own use). Other activity is not included.
Operating Profit
Operating profit is derived from a profit-and-loss statement of manufacturing
establishments and is computed as the difference between total income and total
expenses of the establishment (before financing expenses are subtracted). This figure
also includes return on equity.
3.4 Aggregation of Manufacturing Divisions
Economic activities are classified according to the Standard Industrial Classification
of all Economic Activities 19931. The divisions are aggregated as follows:
1) Food manufacturing includes: food products, beverages, and tobacco products
(Divisions14, 15, 16).
2) Textiles, Apparel, and Leather manufacturing includes: textiles, apparel and footwear
products, and leather and leather products (Divisions 17, 18, 19).
3) Paper, Printing, and Manufacturing n.e.c. includes: paper and paper products,
publishing and printing, jewellery, goldsmiths’ and silversmiths’ articles, and
manufacturing n.e.c. (Divisions 21, 22, 38, 39).
4) Construction manufacturing includes: mining of minerals, quarrying of stone and
sand, wood and wood products and furniture and non-metallic mineral products
(Divisions 13, 20, 26, 36).
5) Chemicals and Plastics manufacturing include: chemicals and their products, refined
petroleum, and plastic and rubber products (Divisions 23, 24, 25).
6) Metals and Machinery manufacturing include: basic metal, metal products,
machinery and equipment, and office machinery (Divisions 27, 28, 29, 30).
7) Electricity and Electronics manufacturing include: electric motors and electric
distribution apparatus, electronic components, and transport equipment (Divisions
31, 32, 33, 34, 35).
4. Imputation of the Data
Since each establishment provided a revenue figure in the course of the
Manufacturing Survey, we multiplied revenue by the revenue-to-assets ratio for the
group of establishments that submitted balance sheets. Thus we computed the value
of assets for each size group in each aggregated manufacture. After total assets were
estimated, we calculated the other balance sheet components by applying the
proportions found in the establishment-level data that we received.
1
See Central Bureau of Statistics, Standard Industrial Classification of all Economic Activities, 1993, Second
Edition, (Technical Publication No. 63), Jerusalem 2003.
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