Financial Statements and Ratio Analysis CHAPTER 2

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) ASSETSDec 31, 2011Dec 31, 2010 CURRENT ASSETS1,074,495,000814,785,000 Cash & cash equivalents364,565,000257,571,000 Trade receivables270,985,000192,453,000 Inventories404,643,000335,999,000 Other current assets34,302,00028,762,000 FIXED ASSETS658,219,000557,283,000 Property and equipment648,075,000549,338,000 Intangible assets2,803,0002,759,000 Deferred tax asset481,000349,000 Other fixed assets6,860,0004,837,000 TOTAL ASSETS1,732,714,0001,372,068,000

Balance Sheet (BİM) (TL) LIABILITIES & EQUITYDec 31, 2011Dec 31, 2010 CURRENT LIABILITIES1,092,881,000853,070,000 Financial liabilities07,662,000 Trade payables1,019,992,000798,763,000 Other current liabilities45,602,00023,259,000 Income tax payable27,287,00023,586,000 NONCURRENT LIABILITIES23,681,00018,566,000 Reserve for emp.13,037,0009,523,000 Deferred tax liabilities10,644,0009,043,000 EQUITY616,152,000500,432,000 TOTAL LIAB. & EQUITY1,732,714,0001,372,068,000

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, 2011Jan 1-Dec 31, 2010 Net Sales8,189,135,0006,573,951,000 Cost of Goods Sold (-)(6,879,805,000)(5,469,272,000) GROSS PROFIT1,309,330,0001,104,679,000 Sell., Mark. & Dist. Expenses (-)(835,662,000)(708,805,000) General & Adm. Expenses (-)(126,214,000)(104,358,000) Other Operating Income16,334,00011,253,000 Other Operating Expenses (-)(4,414,000)(7,104,000) EBIT359,374,000295,665,000 Financial Income21,051,00013,993,000 Financial Expenses (-)(2,686,000)(3,657,000) EARNINGS BEFORE TAXES377,739,000306,001,000 Tax Expenses (-)(78,829,000)(60,361,000) NET INCOME298,910,000245,640,000

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 % Current assets292,875,364 TL241,929,341 TL61.16%56.51% Cash and Cash Equivalents23,662,500 TL22,482,127 TL4.94%5.25% Trade Receivables100,364,955 TL82,840,393 TL20.96%19.35% Other Receivables1,954,797 TL379,698 TL0.41%0.09% Due from related parties63,343,082 TL36,723,875 TL13.23%8.58% Inventories98,808,675 TL89,077,430 TL20.63%20.81% Other Current Assets4,741,355 TL10,425,818 TL0.99%2.44% Non-current assets186,015,622 TL186,223,204 TL38.84%43.49% Financial Investments86,062 TL 0.02% Due to related parties10,388,950 TL0 TL2.17%0.00% Investment Property22,377,896 TL22,464,051 TL4.67%5.25% Property Plant and Equipment148,168,865 TL157,721,814 TL30.94%36.84% Intangible Assets4,993,849 TL4,241,457 TL1.04%0.99% Other Non-Current Assets0 TL1,709,820 TL0.00%0.40% TOTAL ASSETS478,890,986 TL428,152,545 TL100.00%

Common Size Financial Statement % Sales338,887,305 TL311,395,636 TL100.00% Cost of sales(-)-243,929,044 TL-251,389,146 TL-71.98%-80.73% Gross Profit94,958,261 TL60,006,490 TL28.02%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% Other income41,338,011 TL8,419,606 TL12.20%2.70% Other expenses(-)-14,759,878 TL-6,140,368 TL-4.36%-1.97% Operating Income52,794,694 TL4,475,408 TL15.58%1.44% Financial income30,833,960 TL14,682,115 TL9.10%4.71% Financial expenses (-)-25,476,221 TL-14,494,640 TL-7.52%-4.65% Income Before taz from Continuing Operations58,152,433 TL4,662,883 TL17.16%1.50% Tax Charge of Continuing Operations-9,241,320 TL-412,951 TL-2.73%-0.13% Net Income for the Year48,911,113 TL4,249,932 TL14.43%1.36%

Trend Analysis %2010 % Current assets292,875,364 TL241,929,341 TL121.06%100.00% Cash and Cash Equivalents23,662,500 TL22,482,127 TL105.25%100.00% Trade Receivables100,364,955 TL82,840,393 TL121.15%100.00% Other Receivables1,954,797 TL379,698 TL514.83%100.00% Due from related parties63,343,082 TL36,723,875 TL172.48%100.00% Inventories98,808,675 TL89,077,430 TL110.92%100.00% Other Current Assets4,741,355 TL10,425,818 TL45.48%100.00% Non-current assets186,015,622 TL186,223,204 TL99.89%100.00% Financial Investments86,062 TL % Due to related parties10,388,950 TL0 TL- - Investment Property22,377,896 TL22,464,051 TL99.62%100.00% Property Plant and Equipment148,168,865 TL157,721,814 TL93.94%100.00% Intangible Assets4,993,849 TL4,241,457 TL117.74%100.00% Other Non-Current Assets0 TL1,709,820 TL0.00%100.00% TOTAL ASSETS478,890,986 TL428,152,545 TL111.85%100.00%

Trend Analysis %2010 % Sales338,887,305 TL311,395,636 TL108.83%100.00% Cost of sales(-)-243,929,044 TL-251,389,146 TL97.03%100.00% Gross Profit94,958,261 TL60,006,490 TL158.25%100.00% R&D expenses(-)-7,227,768 TL-6,746,552 TL107.13%100.00% Marketing, sales & distribution expenses(-)-31,331,278 TL-29,339,329 TL106.79%100.00% General administrative expenses(-)-30,182,654 TL-21,724,439 TL138.93%100.00% Other income41,338,011 TL8,419,606 TL490.97%100.00% Other expenses(-)-14,759,878 TL-6,140,368 TL240.37%100.00% Operating Income52,794,694 TL4,475,408 TL %100.00% Financial income30,833,960 TL14,682,115 TL210.01%100.00% Financial expenses (-)-25,476,221 TL-14,494,640 TL175.76%100.00% Income Before tax fr, Continuing Operations58,152,433 TL4,662,883 TL %100.00% Tax Charge of Continuing Operations-9,241,320 TL-412,951 TL %100.00% Net Income for the Year48,911,113 TL4,249,932 TL %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) ASSETSDec 31, 2012Dec 31, 2011 CURRENT ASSETS446,312,574428,056,413 Cash & cash equivalents1,028,11012,848,217 Trade receivables216,330,982167,682,986 Inventories168,241,045153,078,074 Other current assets45,705,82637,599,020 Othe Accounts15,006,61156,848,116 FIXED ASSETS150,870,556177,876,586 Property and equipment126,583,962155,843,626 Intangible assets764,804873,682 Deferred tax asset11,711,18511,840,469 Other fixed assets299,124745,663 Other Accounts11,511,4818,573,146 TOTAL ASSETS597,183,130605,932,999

Balance Sheet (TAT) (in TL) LIABILITIES & EQUITYDec 31, 2012Dec 31, 2011 CURRENT LIABILITIES269,317,636161,573,145 Financial liabilities190,958,34083,245,508 Trade payables67,024,53769,289,596 Other current liabilities5,637,5255,812,181 Provisions172,100334,000 Other Accounts5,525,1342,891,860 NONCURRENT LIABILITIES95,916,648208,526,190 Financial liabilities85,333,334198,376,934 Employment Provision10,583,31410,149,256 EQUITY231,948,846235,833,664 TOTAL LIAB. & EQUITY597,183,130605,932,999

Jan 1-Dec 31, 2012Jan 1-Dec 31, 2011 Net Sales777,745,848691,669,955 Cost of Goods Sold (-)(620,164,394)(554,380,852) GROSS PROFIT157,581,454137,289,103 Sell., Mark. & Dist. Expenses (-)(100,822,430)(86,374,507) General & Adm. Expenses (-)(27,920,152)(26,363,220) Other Operating Income3,997,1894,722,660 Other Operating Expenses (-)(1,525,041)(1,254,856) EBIT31,288,38428,010,312 Financial Income23,347,96831,343,353 Financial Expenses (-)(40,707,878)(50,412,536) EARNINGS BEFORE TAXES13,928,4748,941,129 Tax Expenses (-)(3,844,147)(2,332,949) NET INCOME10,084,3276,608,180 Income Statement (TAT) (in TL)

Balance Sheet (BOSSA) (in TL) ASSETSDec 31, 2011Dec 31, 2010 CURRENT ASSETS 292,875,364241,929,341 Cash & cash equivalents 23,662,50022,482,127 Trade receivables 100,364,95582,840,393 Inventories 98,808,67589,077,430 Other current assets 4,741,35510,425,818 Othe Accounts 65,297,87937,103,573 FIXED ASSETS 186,015,622186,223,204 Property and equipment 148,168,865157,721,814 Intangible assets 4,993,8494,241,457 Other fixed assets 01,709,820 Other Accounts 32,852,90822,550,113 TOTAL ASSETS 478,890,986428,152,545

Balance Sheet (BOSSA) (in TL) LIABILITIES & EQUITYDec 31, 2011Dec 31, 2010 CURRENT LIABILITIES 125,674,471134,302,882 Financial liabilities 79,608,41690,647,987 Trade payables 37,164,13836,721,183 Other current liabilities 4,550,6503,079,197 Provisions 2,031,0011,734,945 Other Accounts 2,320,2662,119,570 NONCURRENT LIABILITIES 22,265,02211,809,283 Financial liabilities 11,166,7272,333,333 Employment Provision 11,098,2959,475,950 EQUITY 330,951,493282,040,380 TOTAL LIAB. & EQUITY 478,890,986428,152,545

Jan 1-Dec 31, 2011Jan 1-Dec 31, 2010 Net Sales 338,887,305311,395,636 Cost of Goods Sold (-) (243,929,044)(251,389,146) GROSS PROFIT 94,958,26160,006,490 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 41,338,0118,419,606 Other Operating Expenses (-) (14,759,878)(6,140,368) EBIT 52,794,6944,475,408 Financial Income 30,833,96014,682,115 Financial Expenses (-) (25,476,221)(14,494,640) EARNINGS BEFORE TAXES 58,152,4334,662,883 Tax Expenses (-) (9,241,320)(412,951) NET INCOME 48,911,1134,249,932 Income Statement (BOSSA) (in TL)

ADDITIONAL MATERIAL

Balance Sheet (MİGROS) (in 1,000 TL) ASSETSDec 31, 2011 CURRENT ASSETS1,797,570 Cash & cash equivalents1,010,255 Trade receivables67,174 Inventories679,000 Other current assets41,141 FIXED ASSETS3,683,394 Property and equipment1,118,881 Intangible assets250,270 Goodwill2,251,427 Other fixed assets62,816 TOTAL ASSETS5,480,964

Balance Sheet (MİGROS) (in 1,000 TL) LIABILITIES & EQUITYDec 31, 2011 CURRENT LIABILITIES1,578,694 Financial liabilities13,796 Trade payables1,387,042 Other current liabilities98,555 Provisions53,505 Other Accounts25,796 NONCURRENT LIABILITIES2,706,563 Financial liabilities2,573,754 Employment Provision10,516 Other Accounts122,293 EQUITY1,195,707 TOTAL LIAB. & EQUITY5,480,964

Jan 1-Dec 31, 2011 Net Sales 5,753,112 Cost of Goods Sold (-) (4,258,622) GROSS PROFIT 1,494,490 Sell., Mark. & Dist. Expenses (-) (1,030,684) General & Adm. Expenses (-) (211,139) Other Operating Income 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 (-) *** (53,356) NET INCOME (369,214) Income Statement (MİGROS) (in 1,000 TL)

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