CHAPTER 2
Financial Statements
and
Ratio Analysis
Chapter Outline
 What are financial statements?
 What are the main types of financial
statements?
 What is financial statement analysis?
 What are standardized financial statements?
 What is ratio analysis?
Financial Statements
 What are financial statements?
 Why would an interested party need them?
 Who would be the interested parties?
 How to access them?
Balance Sheet
 What is it?
 What are the main account categories in BS?
 What are items on the BS?
 Liquidity principle & Maturity matching
A=L+E
 GAAP & IFRS
Balance Sheet (BİM) (TL)
ASSETS
Dec 31, 2011
Dec 31, 2010
1,074,495,000
814,785,000
Cash & cash equivalents
364,565,000
257,571,000
Trade receivables
270,985,000
192,453,000
Inventories
404,643,000
335,999,000
34,302,000
28,762,000
FIXED ASSETS
658,219,000
557,283,000
Property and equipment
648,075,000
549,338,000
2,803,000
2,759,000
Deferred tax asset
481,000
349,000
Other fixed assets
6,860,000
4,837,000
1,732,714,000
1,372,068,000
CURRENT ASSETS
Other current assets
Intangible assets
TOTAL ASSETS
Balance Sheet (BİM) (TL)
LIABILITIES & EQUITY
Dec 31, 2011
Dec 31, 2010
1,092,881,000
853,070,000
0
7,662,000
1,019,992,000
798,763,000
Other current liabilities
45,602,000
23,259,000
Income tax payable
27,287,000
23,586,000
NONCURRENT LIABILITIES
23,681,000
18,566,000
Reserve for emp.
13,037,000
9,523,000
Deferred tax liabilities
10,644,000
9,043,000
616,152,000
500,432,000
1,732,714,000
1,372,068,000
CURRENT LIABILITIES
Financial liabilities
Trade payables
EQUITY
TOTAL LIAB. & EQUITY
Net Working Capital and Liquidity
 Net Working Capital
 Liquidity
Market Value vs. Book Value
 Book value
 Market value
Income Statement
 What is the income statement?
 What are the main items on the income
statement?
 Revenues – Expenses = Income
 EPS
 BIM Income Statement
Jan 1-Dec 31, 2011
Jan 1-Dec 31, 2010
8,189,135,000
6,573,951,000
(6,879,805,000)
(5,469,272,000)
GROSS PROFIT
1,309,330,000
1,104,679,000
Sell., Mark. & Dist. Expenses (-)
(835,662,000)
(708,805,000)
General & Adm. Expenses (-)
(126,214,000)
(104,358,000)
Other Operating Income
16,334,000
11,253,000
Other Operating Expenses (-)
(4,414,000)
(7,104,000)
359,374,000
295,665,000
Financial Income
21,051,000
13,993,000
Financial Expenses (-)
(2,686,000)
(3,657,000)
EARNINGS BEFORE TAXES
377,739,000
306,001,000
Tax Expenses (-)
(78,829,000)
(60,361,000)
NET INCOME
298,910,000
245,640,000
Net Sales
Cost of Goods Sold (-)
EBIT
Financial Statement Analysis
 Personal Budget ex.
 Comparisons with others and in time
 Early warning & signals
 Who else would benefit?
Standardized Financial Statements
 Common size financial statements
 Trend analysis
 Which companies to compare with?
BOSSA vs. ?
 Benchmarking
Common Size Financial Statement
2011
2010
%
%
Current assets
Cash and Cash Equivalents
Trade Receivables
Other Receivables
Due from related parties
Inventories
Other Current Assets
292,875,364 TL 241,929,341 TL
23,662,500 TL 22,482,127 TL
100,364,955 TL 82,840,393 TL
1,954,797 TL
379,698 TL
63,343,082 TL 36,723,875 TL
98,808,675 TL 89,077,430 TL
4,741,355 TL 10,425,818 TL
61.16%
4.94%
20.96%
0.41%
13.23%
20.63%
0.99%
56.51%
5.25%
19.35%
0.09%
8.58%
20.81%
2.44%
Non-current assets
Financial Investments
Due to related parties
Investment Property
Property Plant and Equipment
Intangible Assets
Other Non-Current Assets
186,015,622 TL 186,223,204 TL
86,062 TL
86,062 TL
10,388,950 TL
0 TL
22,377,896 TL 22,464,051 TL
148,168,865 TL 157,721,814 TL
4,993,849 TL
4,241,457 TL
0 TL
1,709,820 TL
38.84%
0.02%
2.17%
4.67%
30.94%
1.04%
0.00%
43.49%
0.02%
0.00%
5.25%
36.84%
0.99%
0.40%
TOTAL ASSETS
478,890,986 TL 428,152,545 TL
100.00%
100.00%
Common Size Financial Statement
2011
Sales
Cost of sales(-)
338,887,305 TL
2010
%
%
311,395,636 TL 100.00% 100.00%
-243,929,044 TL -251,389,146 TL
-71.98%
-80.73%
Gross Profit
94,958,261 TL
60,006,490 TL
28.02%
19.27%
R&D expenses(-)
-7,227,768 TL
-6,746,552 TL
-2.13%
-2.17%
Marketing, sales and distribution expenses(-)
-31,331,278 TL
-29,339,329 TL
-9.25%
-9.42%
General administrative expenses(-)
-30,182,654 TL
-21,724,439 TL
-8.91%
-6.98%
41,338,011 TL
8,419,606 TL
12.20%
2.70%
Other expenses(-)
-14,759,878 TL
-6,140,368 TL
-4.36%
-1.97%
Operating Income
52,794,694 TL
4,475,408 TL
15.58%
1.44%
Financial income
30,833,960 TL
14,682,115 TL
9.10%
4.71%
-25,476,221 TL
-14,494,640 TL
-7.52%
-4.65%
Income Before taz from Continuing Operations
58,152,433 TL
4,662,883 TL
17.16%
1.50%
Tax Charge of Continuing Operations
-9,241,320 TL
-412,951 TL
-2.73%
-0.13%
Net Income for the Year
48,911,113 TL
4,249,932 TL
14.43%
1.36%
Other income
Financial expenses (-)
Trend Analysis
2011
Current assets
2010
2011 %
2010 %
292,875,364 TL
241,929,341 TL
121.06%
100.00%
23,662,500 TL
22,482,127 TL
105.25%
100.00%
Trade Receivables
100,364,955 TL
82,840,393 TL
121.15%
100.00%
Other Receivables
1,954,797 TL
379,698 TL
514.83%
100.00%
Due from related parties
63,343,082 TL
36,723,875 TL
172.48%
100.00%
Inventories
98,808,675 TL
89,077,430 TL
110.92%
100.00%
4,741,355 TL
10,425,818 TL
45.48%
100.00%
186,015,622 TL
186,223,204 TL
99.89%
100.00%
Financial Investments
86,062 TL
86,062 TL
100.00%
100.00%
Due to related parties
10,388,950 TL
0 TL
-
-
Investment Property
22,377,896 TL
22,464,051 TL
99.62%
100.00%
148,168,865 TL
157,721,814 TL
93.94%
100.00%
4,993,849 TL
4,241,457 TL
117.74%
100.00%
0 TL
1,709,820 TL
0.00%
100.00%
478,890,986 TL
428,152,545 TL
111.85%
100.00%
Cash and Cash Equivalents
Other Current Assets
Non-current assets
Property Plant and Equipment
Intangible Assets
Other Non-Current Assets
TOTAL ASSETS
Trend Analysis
2011
Sales
Cost of sales(-)
2011 %
2010 %
311,395,636 TL
108.83%
100.00%
-243,929,044 TL -251,389,146 TL
97.03%
100.00%
338,887,305 TL
2010
Gross Profit
94,958,261 TL
60,006,490 TL
158.25%
100.00%
R&D expenses(-)
-7,227,768 TL
-6,746,552 TL
107.13%
100.00%
Marketing, sales & distribution expenses(-)
-31,331,278 TL
-29,339,329 TL
106.79%
100.00%
General administrative expenses(-)
-30,182,654 TL
-21,724,439 TL
138.93%
100.00%
41,338,011 TL
8,419,606 TL
490.97%
100.00%
Other expenses(-)
-14,759,878 TL
-6,140,368 TL
240.37%
100.00%
Operating Income
52,794,694 TL
4,475,408 TL 1179.66%
100.00%
Financial income
30,833,960 TL
14,682,115 TL
210.01%
100.00%
-25,476,221 TL
-14,494,640 TL
175.76%
100.00%
Other income
Financial expenses (-)
Income Before tax fr, Continuing Operations
58,152,433 TL
4,662,883 TL 1247.13%
100.00%
Tax Charge of Continuing Operations
-9,241,320 TL
-412,951 TL 2237.87%
100.00%
Net Income for the Year
48,911,113 TL
4,249,932 TL 1150.87%
100.00%
RATIO ANALYSIS
Ratio Analysis
 Liquidity ratios
 Long term solvency ratios
 Turnover ratios (asset management)
 Profitability ratios
 Market value ratios
 The Du Pont Identity
Liquidity Ratios
 Short term assets & liabilities
 Short term creditors
 Market value vs. book value
 High daily volatility
Liquidity Ratios
 Current Ratio
current assets
current liabilities
 Short term coverage ability
 Tat vs. Bossa???
 Optimal ratio? Too high too good?
 Industry comparison
Liquidity Ratios
 Quick (acid-test) ratio
(current assets – inventories)
current liabilities
 Inventory liquidity
 Durability of liquidity
 TAT vs. Equipment producers
 Cash ratio
Leverage Ratios
 Long term solvency
 Debt-to-equity ratio
total debt
owner’s equity
 Bossa? Tat?
 Capital structure mix: too low too good?
 Funds by creditors vs. shareholders
Leverage Ratios
 Debt-to-total assets (book leverage) ratio
total debt
total assets
 Short term debt-to-total assets ratio
short term debt
total assets
 Long term debt-to-total assets ratio
long term debt
total assets
 Tat? Bossa?
Leverage Ratios
 Long term debt ratio
long term debt
long term debt + owner’s equity
 Short term debt volatility
 Account payables: trade policy
 Bossa? Tat?
Leverage Ratios
 Times interest earned
EBIT
Interest Expense
 EBIT
 Financial distress & capacity to borrow more
 Low or high?
 Bossa? Tat?
Leverage Ratios
 Cash coverage ratio
EBIT + Depreciation
Interest Expense
 Depreciation: noncash expense
 Financial distress & capacity to borrow more
 Low or high?
 Bossa? Tat?
Turnover Ratios
 Asset management ratios
 Efficiency of asset usage
 Inventory turnover
 Receivables turnover
 Payables turnover
Turnover Ratios
 Inventory turnover
cost of goods sold
inventory
 Tat? Bossa?
 Inventory efficiency: Low or high?
 Days’ sales in inventory
365 days
inventory turnover
Turnover Ratios
 Receivables turnover
sales
accounts receivables
 Days’ sales in receivables
365 days
receivables turnover
 Collection policy: higher or lower?
 Tat? Bossa?
Turnover Ratios
 Asset turnover ratio
sales
total assets
 Sales generation efficiency: high or low?
 Tat? Bossa?
Profitability Ratios
 Efficiency of operations & profits
 Profit margin
net income
sales
 Sale efficiency & costs incurred
 Higher or lower?
 Tat? Bossa?
Profitability Ratios
 Return on assets (ROA)
net income
total assets
 Asset utilization
 Higher or lower?
 Tat? Bossa?
Profitability Ratios
 Return on equity (ROE)
net income
owner’ equity
 Shareholder funds’ utilization
 Higher or lower?
 Tat? Bossa?
Market Value Measures
 For which companies?
 EPS
net income
# of shares outstanding
 Price-earnings ratio
price per share
earnings per share
 Lower or higher? Future prospects vs. misguiding
 Tat? Bossa?
Du Pont Identity
 ROE
 Profit margin X
total asset turnover X
equity multiplier
 Operating efficiency
 Asset use efficiency
 Financial leverage
SUPPLEMENTARY DATA
Balance Sheet (TAT) (in TL)
ASSETS
CURRENT ASSETS
Dec 31, 2012
Dec 31, 2011
446,312,574
428,056,413
1,028,110
12,848,217
Trade receivables
216,330,982
167,682,986
Inventories
168,241,045
153,078,074
Other current assets
45,705,826
37,599,020
Othe Accounts
15,006,611
56,848,116
FIXED ASSETS
150,870,556
177,876,586
Property and equipment
126,583,962
155,843,626
764,804
873,682
Deferred tax asset
11,711,185
11,840,469
Other fixed assets
299,124
745,663
11,511,481
8,573,146
597,183,130
605,932,999
Cash & cash equivalents
Intangible assets
Other Accounts
TOTAL ASSETS
Balance Sheet (TAT) (in TL)
LIABILITIES & EQUITY
Dec 31, 2012
Dec 31, 2011
CURRENT LIABILITIES
269,317,636
161,573,145
Financial liabilities
190,958,340
83,245,508
67,024,537
69,289,596
5,637,525
5,812,181
172,100
334,000
5,525,134
2,891,860
NONCURRENT LIABILITIES
95,916,648
208,526,190
Financial liabilities
85,333,334
198,376,934
Employment Provision
10,583,314
10,149,256
EQUITY
231,948,846
235,833,664
TOTAL LIAB. & EQUITY
597,183,130
605,932,999
Trade payables
Other current liabilities
Provisions
Other Accounts
Income Statement (TAT) (in TL)
Jan 1-Dec 31, 2012
Net Sales
Jan 1-Dec 31, 2011
777,745,848
691,669,955
(620,164,394)
(554,380,852)
157,581,454
137,289,103
(100,822,430)
(86,374,507)
(27,920,152)
(26,363,220)
3,997,189
4,722,660
Other Operating Expenses (-)
(1,525,041)
(1,254,856)
EBIT
31,288,384
28,010,312
Financial Income
23,347,968
31,343,353
(40,707,878)
(50,412,536)
EARNINGS BEFORE TAXES
13,928,474
8,941,129
Tax Expenses (-)
(3,844,147)
(2,332,949)
NET INCOME
10,084,327
6,608,180
Cost of Goods Sold (-)
GROSS PROFIT
Sell., Mark. & Dist. Expenses (-)
General & Adm. Expenses (-)
Other Operating Income
Financial Expenses (-)
Balance Sheet (BOSSA) (in TL)
ASSETS
Dec 31, 2011
Dec 31, 2010
292,875,364
241,929,341
23,662,500
22,482,127
100,364,955
82,840,393
98,808,675
89,077,430
4,741,355
10,425,818
Othe Accounts
65,297,879
37,103,573
FIXED ASSETS
186,015,622
186,223,204
Property and equipment
148,168,865
157,721,814
4,993,849
4,241,457
0
1,709,820
32,852,908
22,550,113
478,890,986
428,152,545
CURRENT ASSETS
Cash & cash equivalents
Trade receivables
Inventories
Other current assets
Intangible assets
Other fixed assets
Other Accounts
TOTAL ASSETS
Balance Sheet (BOSSA) (in TL)
LIABILITIES & EQUITY
Dec 31, 2011
Dec 31, 2010
125,674,471
134,302,882
Financial liabilities
79,608,416
90,647,987
Trade payables
37,164,138
36,721,183
Other current liabilities
4,550,650
3,079,197
Provisions
2,031,001
1,734,945
Other Accounts
2,320,266
2,119,570
NONCURRENT LIABILITIES
22,265,022
11,809,283
Financial liabilities
11,166,727
2,333,333
Employment Provision
11,098,295
9,475,950
EQUITY
330,951,493
282,040,380
TOTAL LIAB. & EQUITY
478,890,986
428,152,545
CURRENT LIABILITIES
Income Statement (BOSSA) (in TL)
Jan 1-Dec 31, 2011
Net Sales
Jan 1-Dec 31, 2010
338,887,305
311,395,636
(243,929,044)
(251,389,146)
94,958,261
60,006,490
Sell., Mark. & Dist. Expenses (-)
(31,331,278)
(29,339,329)
General & Adm. Expenses (-)
(30,182,654)
(21,724,439)
R&D Expenses
(7,227,768)
(6,746,552)
Other Operating Income
41,338,011
8,419,606
(14,759,878)
(6,140,368)
EBIT
52,794,694
4,475,408
Financial Income
30,833,960
14,682,115
(25,476,221)
(14,494,640)
EARNINGS BEFORE TAXES
58,152,433
4,662,883
Tax Expenses (-)
(9,241,320)
(412,951)
NET INCOME
48,911,113
4,249,932
Cost of Goods Sold (-)
GROSS PROFIT
Other Operating Expenses (-)
Financial Expenses (-)
ADDITIONAL MATERIAL
Balance Sheet (MİGROS) (in 1,000 TL)
ASSETS
CURRENT ASSETS
Cash & cash equivalents
Trade receivables
Inventories
Other current assets
Dec 31, 2011
1,797,570
1,010,255
67,174
679,000
41,141
FIXED ASSETS
Property and equipment
Intangible assets
3,683,394
1,118,881
250,270
Goodwill
2,251,427
Other fixed assets
62,816
5,480,964
TOTAL ASSETS
Balance Sheet (MİGROS) (in 1,000 TL)
LIABILITIES & EQUITY
Dec 31, 2011
CURRENT LIABILITIES
Financial liabilities
1,578,694
13,796
Trade payables
1,387,042
Other current liabilities
98,555
Provisions
53,505
Other Accounts
25,796
NONCURRENT LIABILITIES
Financial liabilities
2,706,563
2,573,754
Employment Provision
10,516
Other Accounts
122,293
EQUITY
1,195,707
TOTAL LIAB. & EQUITY
5,480,964
Income Statement (MİGROS) (in 1,000 TL)
Jan 1-Dec 31, 2011
Net Sales
Cost of Goods Sold (-)
GROSS PROFIT
Sell., Mark. & Dist. Expenses (-)
General & Adm. Expenses (-)
Other Operating Income
5,753,112
(4,258,622)
1,494,490
(1,030,684)
(211,139)
8,955
Other Operating Expenses (-)
(29,210)
EBIT
232,412
Financial Income
176,935
Financial Expenses (-)
(725,205)
EARNINGS BEFORE TAXES
(315,858)
Tax Expenses (-) ***
NET INCOME
(53,356)
(369,214)
Liquidity Ratios
 Current ratio?
 Quick (acid-test) ratio?
Leverage Ratios
 Debt-to-equity ratio?
 Debt-to-total assets (book leverage) ratio?
 Short term debt-to-total assets ratio?
 Long term debt-to-total assets ratio?
Leverage Ratios
 Long term debt ratio?
 Times interest earned
 Cash coverage ratio?
Turnover Ratios
 Inventory turnover ratio?
 Days’ sales in receivables
 Receivables turnover ratio?
 Day’s sales in receivables?
 Asset turnover ratio?
Profitability Ratios
 Profit margin?
 ROA?
 ROE?
Market Value Measures
 Assume Migros has 2,000,000 shares
outstanding
 EPS?
 Price-earnings ratio?
END OF CHAPTER