Fınancıal Statement Analysıs (ENG) — Ünite 5 Soru-Cevap

Current assets, also known as "gross working capital", have two main functions. These are;
• Payment of overdue short-term liabilities and
• Ensuring that daily transactions are carried out.

The ratios that will emerge in large numbers have been subjected to various classifications due to their usefulness and ease of comparison. The most used classification is the classification made according to the usage of ratios in the evaluation of business activities.
• Liquidity ratios
• Financial structure (leveraged) ratios
• Activity ratios
• Profitability ratios.

Acid-test ratio provides a more stringent measurement about liquidity compared to the current ratio because the current ratio does not take into account the composition of the current assets.

The balance sheet is defined as the financial statement showing the financial situation of the business at a certain date. By stating financial situation, it explains the assets and the liabilities that are the sources of the assets. Financial structure (solvency) ratios are important in terms of revealing the structure of financing activity.

Equity ratio provides a different perspective on the manner in which a company funds its assets as with the debt ratio, it shows the relative proportion of equity and debt used to finance a company’s assets.

If the result is below 100%, it indicates that equity is sufficient in financing the non-current assets of the company. If the result is greater than 100% (mathematically, it means that the total non-current assets are greater than the total of equities), it can be said that liabilities are used in financing non-current assets. However, this ratio does not answer the question of whether long-term liabilities or short-term liabilities are used in financing non-current assets in such a situation.

The times interest earned (interest coverage) ratio is important to evaluate the company’s ability to meet interest payments as they come due. It indicates how well operating earnings cover fixed interest expenses. As it will be remembered, the cost of using liabilities is interest cost. Therefore, in order to talk about the successful use of liabilities, the profit of the company should be higher than the interest expenses

Assets are defined as the economic resources which are acquired to use in the operations of the company.

Operating ratios are calculated by proportioning the Net Sales amount obtained from the income statement with some exceptions and the average
amount of the asset to be measured.

The high inventory turnover ratio is an indicator of the possibility of increasing the profitability of the company because it may have compromised profitability to increase business sales, or operating expenses and other costs may have increased due to efforts to increase sales.

The property, plant and equipment turnover ratio is used to measure the degree of investment of the company in property, plant and equipment. Whether the investment in property, plant and equipment is excessive or not, the existence of idle capacity or whether the property, plant and equipment are working on their capacity can be determined by interpreting this ratio.

The main purpose of businesses is to make a profit. Profit is the positive difference between income earned in a certain period and expenses incurred in the same period.

In generally, businesses earn income from the various activities they do, and they also incur various expenses to earn income. When these incomes and expenses are classified, we see that the income and expenses related to the main activity of the company (related to the sale of goods or services), the continuing side activities and the non-continuing side activities occur.

it is important to know the return of sales, as well as the return of assets and equity. Based on this point, it is possible to divide profitability ratios into two main sections. These are;
• Ratios showing the relationship between
Profit and Sales,
• Ratios that show the relationships between
profit and capital.

We need to that because This ratio provides information regarding the profitability of the operating volume of the business shows the extent of the company’s main business is profitable.

Because the net profit of the period in the numerator in the calculation of the ratio shows the profit after tax.

The net profit of the period in the numerator in the calculation of the ratio shows the profit after tax. However, since changes in tax rates may lead to erroneous interpretations in the comparison of the periods, the profitability ratio can be determined by proportioning the profit of the period before tax to the owners’ equity (can be called as equity)

Economic Profitability ratio is used to measure the return on the continuous capital which is the sum of equity and long-term liabilities. It shows that the company earned a profit of up to % percent of the total resources. The high ratio is an indicator that the resources are used profitably.

An important factor in determining whether the profitability of the equity is sufficient or not is the
fact that the equity has alternative usage possibilities

The profitability ratio of the assets can also be calculated by relating the net profitability of the business and the ratio of turnover of the assets. Thus, the effect of the net profitability of the company and the turnover ratio of the assets on the profitability of the assets can also be examined.