1. FINANCIAL STATEMENT ANALYSIS
(RATIO ANALYSIS)

2. FINANCIAL STATEMENTS
RATIO ANALYSIS
Ratio Analysis In ratio analysis, a simple arithmetical relationship of one number to another is calculated. It is the process of establishing and interpreting various ratios for helping in making certain decision.

3. FINANCIAL STATEMENTS
RATIO ANALYSIS
This technique enables,
Selection of relevant data from the financial statement depending upon the objective of the analysis,
Comparison of calculated ratio,
Interpretation of ratios,
Historical comparison,
Projected ratio,
Inter-firm comparison.

4. FINANCIAL STATEMENTS RATIO ANALYSIS Ratio Analysis
Ratio categories which are produced for financial analysis purpose are as follows:
Liquidity,
Activity,
Solvency and Financial Structure,
Profitability
Category
Issues Examined
Liquidity
Indicates ability of a firm to meet short-term obligations.
Activity
Indicates efficiency and effectiveness of operations and asset management.
Solvency and Financial Structure
Indicates the ability of a firm to meet long-term obligations and capital structure decisions
Profitability
Indicates ability to retain earnings (growth) after covering costs
Cash Flow
Quality of cash flows.

5. FINANCIAL STATEMENTS LIQUIDITY ANALYSIS Current Assets
Assets Balance Sheet Liabilities
Current Assets
Current Liabilities
Non-Current Assets
Non-Current Liabilities
Equity
Liquidity analysis is based on current assets and current liabilities and ratios directly related to short-term operating health.
This ratio analysis focuses on the short-term cash needs of a firm.
As a conclusion, liquidity analysis focuses on working capital and operating cycle of a firm.

6. FINANCIAL STATEMENTS LIQUIDITY ANALYSIS
ABC CO X1 BALANCE SHEET
CURRENT ASSETS
CURRENT LIABILITIES
Cash and cash equivalents
Bank Loans
Financial Assets
Trade Payables
Trade Receivables
Tax Payable
Inventories
Provisions
NON-CURRENT ASSETS
NON-CURRENT LIABILITIES
Property, Plant and Equipment
EQUITY
As a conclusion, liquidity analysis focuses on working capital and operating cycle of a firm.
In liquidity analysis, the relation between the components of working capital are analyzed.

7. FINANCIAL STATEMENTS LIQUIDITY RATIOS Liquidity Analysis
ABC CO X1 BALANCE SHEET
CURRENT ASSETS
CURRENT LIABILITIES
Cash and cash equivalents
Bank Loans
Financial Assets
Trade Payables
Trade Receivables
Tax Payable
Inventories
Provisions
NON-CURRENT ASSETS
NON-CURRENT LIABILITIES
Property, Plant and Equipment
EQUITY
Liquidity Analysis
As known, the components of working capital is current assets and current liabilities.
Therefore the common liquidity ratios includes ratios which analyze the relationship between current assets and current liabilities. This ratios are;
The Current Ratio
The Quick Ratio
The Cash Ratio

8. FINANCIAL STATEMENTS LIQUIDITY RATIOS CR1  Negative Working Capital
Current Ratio (CR)
Current ratio indicates whether the company has adequate assets (cash or assets that easily convert to cash) to pay (cover) its short term obligations at balance sheet date.

9. Quick Ratio (Acid-Test or Liquidity Ratio)
FINANCIAL STATEMENTS
LIQUIDITY RATIOS
Quick Ratio (Acid-Test or Liquidity Ratio)
This ratio aims to remove the less liquid assets from current assets. The removal includes inventories and pre-paid expenses.
This ratio provides information about the ability of easily converted assets to pay short-term obligations.

10. FINANCIAL STATEMENTS LIQUIDITY RATIOS
QR1  Easily converted cash assets are not adequate to pay short-term liabilities, and the firm has to convert its inventories into cash.
This ratio indicates the percentage of inventory must be converted to cash to pay its short term obligations.

11. FINANCIAL STATEMENTS LIQUIDITY RATIOS Cash Ratio
ABC CO X1 BALANCE SHEET
CURRENT ASSETS
CURRENT LIABILITIES
Cash and cash equivalents
Bank Loans
Financial Assets
Trade Payables
Trade Receivables
Tax Payable
Inventories
Provisions
NON-CURRENT ASSETS
NON-CURRENT LIABILITIES
Property, Plant and Equipment
EQUITY
Cash Ratio
Cash ratio indicates whether the company has adequate cash to pay (cover) its current liabilities at balance sheet date.

12. FINANCIAL STATEMENTS LIQUIDITY RATIOS
Ex: ABC Co.’s items of current assets and liabilities are as follows:
ABC CO X1 BALANCE SHEET
CURRENT ASSETS
100
CURRENT LIABILITIES 60
Cash and cash equivalents 20
Bank Loans 15
Financial Assets
Trade Payables 25
Trade Receivables 35
Tax Payable 10
Inventories 30
Provisions
NON-CURRENT ASSETS
200
NON-CURRENT LIABILITIES 90
Property, Plant and Equipment
Bonds 55
EQUITY
150
TOTAL
300

13. FINANCIAL STATEMENTS LIQUIDITY RATIOS ABC CO. 31.12.20X1 BALANCE SHEET
CURRENT ASSETS
100
CURRENT LIABILITIES 60
Cash and cash equivalents 20
Bank Loans 15
Financial Assets
Trade Payables 25
Trade Receivables 35
Tax Payable 10
Inventories 30
Provisions

14. Working capital is a measure of liquidity of a business.
FINANCIAL STATEMENTS
LIQUIDITY ANALYSIS
Working capital is a measure of liquidity of a business.
The components of working capital consist of cash, trade receivables, inventory and trade payables.
The operating cycle is the average period of time required for a company to make an initial outlay of cash to produce and sell the goods, and receive cash from customers.

15. FINANCIAL STATEMENTS
LIQUIDITY RATIOS
The operating cycle is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business.
A company with an extremely short operating cycle requires less cash. Therefore, it can still grow while selling at small margins.
Conversely, if a business have long operating cycle, needs to accelerate selling cycle. Otherwise it requires additional financing to perform its operating activity.

16. Activity ratios identify how day-to-day operations function.
FINANCIAL STATEMENTS
ACTIVITY RATIOS
On this perspective, the operating cycle, cash cycle becomes a significant issue to determine the liquidity.
Activity ratios identify how day-to-day operations function.
These ratios are also called efficiency or turnover ratios.

17. FINANCIAL STATEMENTS
ACTIVITY RATIOS
These ratios describe how well a firm is using its investment in various asset classes:
Inventory Turnover Ratio
Accounts Receivable Turnover Ratio
Debt Turnover Ratio
Assets Turnover Ratio
Tangible Assets Turnover Ratio

18. Inventory Turnover Ratio
FINANCIAL STATEMENTS
ACTIVITY RATIOS
Inventory Turnover Ratio
Inventory Turnover Ratio combines an item from income statement (cost of goods sold) with an item in balance sheet (inventories).
The ratio indicates how many times inventory was acquired and sold over the year.

19. Inventory Turnover Ratio
FINANCIAL STATEMENTS
ACTIVITY RATIOS
Inventory Turnover Ratio
The ratio indicates how many times inventory was acquired and sold over the year. From a different point of view, this ratio indicates how many days inventory was held before it was sold.
The longer that inventory must be held and stored before use or sale, the greater the overall storage costs.
This ratio is also used in estimating cash needs.

20. Accounts Receivable (A/R) Turnover Ratio
FINANCIAL STATEMENTS
ACTIVITY RATIOS
Accounts Receivable (A/R) Turnover Ratio
This ratio indicates how many times over the year or reporting period credit sale is made to a customer and subsequently collected.

21. FINANCIAL STATEMENTS ACTIVITY RATIOS OR
Accounts Payable (A/P) Turnover Ratio OR

22. LEDGER ENTRIES OF INVENTORIES
FINANCIAL STATEMENTS
ACTIVITY RATIOS
Ex: The current assets, sales and cost of goods sold of ABC Co. are as follows
 BALANCE SHEET OF ABC CO.
2008
2009
ASSETS
Current Assets
100
150
Cash and Cash Equivalents 20 30
Financial Assets 10
Trade Receivables 40 50
Inventories 60 70
Current Liabilities
Accounts Payables
INCOME STATEMENT
2008
2009
Sales
1.000
1.300
Cost of Goods Sold
(600)
(800)
Purchases= (Cost of Goods Sold + Ending Inventory) - Beginning Inventory
Purchases = ( ) – 60 = 810
LEDGER ENTRIES OF INVENTORIES
Beginning Inventory
Purchases
Cost of Goods Sold 800
Ending Inventory
Beginning Inventory
Purchases
Ending Inventory (70)
Cost of Goods Sold

23. FINANCIAL STATEMENTS ACTIVITY RATIOS BALANCE SHEET OF ABC CO. 2008
2009
ASSETS
Current Assets
100
150
Cash and Cash Equivalents 20 30
Financial Assets 10
Trade Receivables 40 50
Inventories 60 70
Current Liabilities
Accounts Payable
INCOME STATEMENT
2008
2009
Sales
1.000
1.300
Cost of Goods Sold
(600)
(800)

24. FINANCIAL STATEMENTS ACTIVITY RATIOS BALANCE SHEET OF ABC CO. 2008
2009
ASSETS
Current Assets
100
150
Cash and Cash Equivalents 20 30
Financial Assets 10
Trade Receivables 40 50
Inventories 60 70
Current Liabilities
Accounts Payable
INCOME STATEMENT
2008
2009
Sales
1.000
1.300
Cost of Goods Sold
(600)
(800)

25. FINANCIAL STATEMENTS LIQUIDITY RATIOS Operating Cycle
Days to Sell Inventory
40 days
Receivables Collection Period
12 days
Days of Accounts Payable
(17 days)
Cash Cycle Period
35 days

26. FINANCIAL STATEMENTS
LIQUIDITY RATIOS
If a company has short operating cycle comparing with industry requires less cash.
Conversely, if a business have long operating cycle, needs to accelerate selling cycle.
Otherwise it requires additional financing to perform its operating activity.

27. Financial Statements Analyses Of Arçelik Co. 2007 2008 2009 2010 2011
2007
2008
2009
2010
2011
CURRENT ASSETS
Cash and Cash Equivalents
Financial Assets
26.039
4.444
1.185
2.932
Trade Receivables
Inventories
Other Current Assets
98.941
NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Financial Liabilities
Other Financial Liabilities
97.107
89.368
105231
129769
183886
Trade Payables
Provisions for Tax
4.741
4.063
14.356
18.970
23.250
Provisions
Other Liabilities
NON-CURRENT LIABILITIES
EQUITY
TOTAL LIABILITIES AND EQUITY
INCOME STATEMENT
Sales
Cost of Goods Sold
( )
( )
( )
( )
( )
Gross Profit

28. Financial Statements Analyses Of Arçelik Co. ARCELİK INDUSTRY AVERAGES
ARCELİK
INDUSTRY AVERAGES
2008
2009
2010
2011
Liquidity Analysis
Working Capital
Current Ratio
1.52
1.35
2.15
1.80
2.04
1.85
1.69
1.55
Quick Ratio
1.04
1.02
1.65
1.30
1.18
1.15
1.13
1.01
Cash Ratio
0.14
0.29
0.60
0.35
0.25
0.39
0.21
Inventories/Total Assets
0.22
0.30
0.33
Trade Payables/Total Assets
0.38
0.32
0.48
0.37
0.36
Acc. Receivable Turnover
2.66
2.74
3.04
3.07
0.0
3.4
3.7
3.5
Days Acc. Receivable
135
131
118
117
105 98
101
Inventory Turnover
3.76
4.00
5.14
4.68
2.4
5.8
6.6
7.0
Days Inventory 96 90 70 77
150 62 54 51
Acc. Payable Turnover
10.78
9.43
8.01
7.61
Days Acc. Payable 33 38 45 47

29. Financial Statements Analyses Of Arçelik Co. 2009
Operating Cycle of Arçelik
Operating Cycle of Industry
Cash Cycle of Arçelik
Days to Sell Inventory
90 days
105 days
Receivables Collection Period
131 days
62 days
Days of Accounts Payable
(38 days)
221 days
167 days
183 days
2010
Operating Cycle of Arçelik
Operating Cycle of Industry
Cash Cycle of Arçelik
Days to Sell Inventory
70 days
98 days
90 days
Receivables Collection Period
118 days
54 days
131 days
Days of Accounts Payable
(45 days)
188 days
152 days
176 days