Fınancıal Statement Analysıs (ENG) — Ünite 3 Soru-Cevap

In vertical analysis, each item in the financial statements is stated as a percentage of another item or the total amount.

In the vertical analysis of a balance sheet the total amount of assets (or liabilities plus shareholders’ equity) is taken as
100, the proportion of each item to total assets is calculated. 

There exist two
• The proportion of each balance sheet item can be calculated to total balance sheet amount and/or to the total of its subgroup.

• It may not be possible to make meaningful comparisons of the numeric values and/or changes
in the financial statements of the companies operating in the same sector. By stating the items
in the balance sheet as a proportion to total balance sheet amount, it becomes possible to make such comparisons.

In the income statement, the Net Sales Revenue amount is taken as 100 and other items are stated as a proportion to the sales amount.

In the process of the evaluation of asset and liability composition, the proportion of the subgroups of
the total balance sheet amount is compared with that of the companies operating in the same sector.

The evaluation of asset and liability composition is realized in three steps:
• The evaluation of asset composition
• The evaluation of liability composition
• The evaluation of asset-liability relation

While evaluating the asset composition of a company, the proportions of the current and non-current asset to total asset are evaluated.

In the industrial sectors, as the production process necessitates investment to fixed assets such as machinery and equipment, the noncurrent assets generally dominate the balance sheet.

By evaluating the asset-source relation of a company, it is possible to determine the funding sources of the current and non-current assets. 

When the current assets are less than the current liabilities, this will create deficiency in the net working capital. 

Consequently, the company may face financing problems to meet its obligations on time.

The revenue and profit related items are accepted as adequate if they cover the succeeding expenses or losses in the vertical analysis. The profit items are better if they constitute a higher proportion of the net sales. In order to elaborate the profit items, it should also be taken into account whether the profit item is
generated from the main operations of the company and whether it allows self-financing. Generally, it is desired not to have any extraordinary expenses and
losses.

It is determined that 76.97% of the total assets is constituted of current assets and the remaining 23.03% of non-current assets.

As the receivables backed by promissory notes are more reliable and can be converted into cash more easily, it is more desirable a higher proportion of the receivables to be backed by promissory notes.

Referring to the footnotes related with the receivables, it is determined that they are not under the cover of promissory notes. Consequently, if a proper collection policy is not applied and the receivable turnover is low, the collection may be problematic especially in crisis times.

Nearly all of the fixed assets are comprised of the tangible assets in the form of building and machinery and equipment which are used for basically production purposes. Referring to the footnotes the accumulated depreciation in the amount of -34,668,549 TL leads the fixed assets to reduce. This also signals that the fixed assets are old which necessitates new investments in the future. 

It is determined that 40.46% of the total assets are financed by short term liabilities, 5.88% by long term liabilities and 53.65% by the shareholders’ equity. 

it is determined that 40.46% of the total assets are financed by short term liabilities, 5.88% by long term liabilities and 53.65% by the shareholders’ equity. The level of the equity is considered to be positive in terms of financial structure as well as liquidity as this source does not require periodic payments.

The short term liabilities are composed of mainly trade payables and advances from customers which are thought to be invested in inventory. 

The current asset constitutes 76.97% of the total assets and the short term liabilities constitute 40.46% of the sources. This shows that the company can meet its short term liabilities by using the current assets, and have positive net working capital.

In other words, it can be said that 40.46% of the current assets are financed by the short term liabilities and the remaining 36.51% is financed by the shareholders’ equity.

The current asset constitutes 76.97% of the total assets and the short term liabilities constitute 40.46% of the sources. This shows that the company can meet its short term liabilities by using the current assets, and have positive net working capital.

The current asset constitutes 76.97% of the total assets and the short term liabilities constitute 40.46% of the sources. This shows that the company can meet its short term liabilities by using the current assets, and have positive net working capital. 

35.05% of the total equity is constituted by the revaluation fund, 19.50% is by the reserves and the remaining 23.37% by the net income. This composition signals the inadequacy of the shareholders’ equity as the revaluation fund is not a cash generating item.

While the gross profit is 31.63% of the net sales, the profit from the operations is 16.41%.
This means that the expenses incurred for general management and sales are very high and there can be some saving opportunities to be considered in the coming years.

Operating Expenses are 15.22% of the net sales.

Additionally, net profit to net sales ratio can be compared with the ratio of the net income as a proportion of the total sources and total
shareholders’ equity.

The net profit to net sales ratio is 11.17% with the ratio of the net income to total sources  is 12.54% and the ratio of net income to total shareholders’ equity which is 23.37% indicates that the level is acceptable and this will contribute to equity and funding structure of the company.