Financial

Statements

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Financial Statements
 Main Statements
 BalanceSheet
 Income Statement
 Other Statements
 Cash Flow Statement
 Statement of Changes in Owners’ Equity
 Notes to the Financial Statements

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Financial Statements
Financial Statement package prepared periodically
 Balance Sheet
 Financial position of the business as of a date
 Income Statement
 Result of operations over a period
 Notes
 Explain items in the statements
 Disclose risks and uncertainties
 Explain any resources or obligations not presented in
the statements

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Accounting Principles
Generally Accepted Accounting Principles
 Entity concept
 Objectivity principle
 Cost Principle (measurement basis)
 Historic cost (mostly), current cost, net
realizable value, present value
 Accrual basis – not cash basis
 Going-concern assumption

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Responsibility for Financial
Statements
 The management of an enterprise has the
primary responsibility for preparing and
presenting the enterprise's financial
statements
 Independent audit requirement
 Board of Directors Approval

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Elements of Financial Statements
 Assets
Balance Sheet:
 Liabilities
Measure financial position
 Equity Assets = Liabilities + Equity

 Revenue Income Statement

 Expense Measure results of operations
Revenues – Expenses= Profit

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Balance Sheet
Financial statements that show the
value of the firm’s assets and liabilities
at a particular point in time (from an
accounting perspective).
 historic cost concept
 valuable intangible assets and
conditional liabilities are not listed

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 Balance Sheet
Main Balance Sheet Items

Current Assets Current Liabilities

Cash &Securities Payables
Receivables Short-term Debt
Inventories
+
+ = Long-term Liabilities
Fixed Assets
Tangible Assets +
Intangible Assets
Shareholders’ Equity
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Assets
Assets are the values owned by the
company
 “An asset is a resource controlled by the
entity as a result of past events and from
which future economic benefits are
expected to flow to the entity” (IASB,
Framework)

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Liabilities and Equity
Liabilities represent the financial or in kind
obligations of a company
 “A Liability is a present obligation of the entity
arising from past events, the settlement of which
is expected to result in an outflow from the entity
of resources embodying economic benefits”
Equity is the residual claim of owners on the
company
 “Equity is the residual interest in the assets of
the entity after deducting all its liabilities”
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 Income Statement
Financial statement that shows the revenues,
expenses, and net income of a firm over a
period of time (from an accounting
perspective).

 Revenue recognition & matching concepts

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 Statement of Income
Net Revenue
-Cost of Sales
GrossProfit
- Operating Expenses
+ Other Operating Income
- Other Operating Expense
Operating Profit
Operating Profit
+ Financial Income
- Financial Expenses
Profit Before Tax
- Tax Expense
Net Income
Net Income
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Income Statement
 Gross Margin
Earnings Before Income & Taxes (EBIT)
 EBIT is distributed as
 interest to creditors
 taxes to governments
 profits to shareholders
 Net Income

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Cash Flow Statement
 Provides information about the historical
changes in cash and cash equivalents
 Classified according to cash flows from
 Operating activities
 Investing activities
 Financing activities
 Explains changes in cash
 IAS7: Statement of cash flows
http://www.iasplus.com/en/standards/ias/ias7
FINANCIAL
STATEMENT
ANALYSIS
Purpose
Financial statement analysis is evaluating the
 Financial structure
 Results of the operations of the company

To form a solid understanding of past

performance and to develop expectations
and strategies for the future
Analysis Framework
 Consider economic, industry and firm-
specific characteristics, such as
 Rate of inflation, demographic shifts, interest
rate changes, unemployment, etc.
 Competition structure, demand characteritics,
technological development, etc.
 Patent rights, labor relations, quality issues,
etc.
Method
 Make observations and evaluations on
 Financial statements –
 Comparative (horizontal) analysis
 Common-size (vertical)analysis

 Cash flow statements

 Financial ratios
 Break-even analysis
 Reach an overall evaluation and
conclusion
Ratio Analysis
 Basic assessment of company
performance using ratios from financial
statements and market information
Evaluate through compare with:
 Past ratios
 Industry averages
 Competitor or similar company ratios
 Targets, budgets
Ratio Analysis - Themes
 Current liquidity ratios
 Profitability ratios
 Activity ratios
 Leverage ratios
Sources of Information
 Financial statement package
 Current press releases and news
 Required announcements and disclosures
 Presentations to financial analysts
 Management report and analysis of the
current year
 Analyst reports
Financial Statement Analysis
 Comparative Analysis
 Change in sales revenues
 Change in total assets
 Commonsize analysis
 Composition of profit
 Composition of assets and sources of assets
 Cash Flow statement indicators
 Operating / Investing / Financing
 Liquidity Ratios

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 Balance Sheet – Working Capital
Assets Liabilities and Equity
CURRENT ASSETS CURRENT LIABILITIES
Cash & C.Equivalents Short Term Borrowings
Trade Receivables Trade Payables
Inventories Other Payables
Provisions for Tax
Other Current Assets
Other Current Liabilities
NON-CURRENT ASSETS
NON-CURRENT LIABILITIES
Trade Receivables EQUITY
Financial Investments Share Capital
Plant, Property & Equipm. Reserves
- Accum. Depreciation Accummulated Profit
Intangible Assets Net Profit

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 Working Capital Cycle
Receivable Turnover Cash
Collection Period

Trade Receivables Trade Payables

Inventories
Inventory Turnover
Days in Inventory
Sales

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Working Capital Cycle

 Operating Cycle
=Inventory Period + Accounts Receivable Period
 Cash conversion cycle
=Inventory Period + Accounts Receivable
Period - Accounts Payable Period

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Cash Conversion Cycle
Inventory Receivables
Period Period

Buy Inventory Sell Goods Collect from Sales

Commit Resources

Pay for Resources

Account
Cash Conversion Cycle
Payable Period

Pay for Inventory

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Working Capital of CCI
CCI Dec.31, 2014 Dec.31, 3013
Thousand TL
CURRENT ASSETS 2.249.180 2.802.351
Cash and Cash Equivalents 756.968 916.770
Investments in Securities 2.971 562.985
Trade Receivables 422.049 383.388
Inventories 575.687 461.486
Other Current Assets 289.500 273.923
CURRENT LIABILITIES 1.443.236 1.815.250
Short-term Borrowings 515.335 164.334
Current Portion of Long-term Borrowings 113.251 1.004.320
Trade Payables 557.582 433.206
Other Current Liabilities 465.958 213.390
NET WORKING CAPITAL 805.944 987.101

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Liquidity Indicators
Liquidity is the ability to make short term financial
obligations with short term cash or near cash
items
 Working Capital = Current Assets – Current Liabilities
 Current Ratio = Current Assets / Current Liabilities
 Quick Ratio = (Cur. Assets-Inventories)/Cur.Liabilities
 Cash Ratio = Cash & Equiv. / Cur. Liabilities

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Liquidity Indicators of CCI

Liquidity Ratios of CCI 2014 2013

Net Working Capital 805.944 987.101
Current Ratio 1,6 1,5
Quick Ratio 1,2 1,3
Cash Ratio 0,5 0,5

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Liquidity Indicators - Receivables
 How fast accounts receivables turn to
cash influences liquidity

Net Sales
Accounts Receivable Turnover =
Accounts Receivable

365
Average Collection Period =
Accounts Receivable Turnover

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Liquidity Indicators -Inventories
 How fast inventories turn to cash also
influence liquidity

Cost of Sales
Inventory Turnover =
Inventories

365
Average Days in Inventory =
Inventory Turnover

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Liquidity Indicators – Accounts Payables
 How fast trade payables are paid also
influence liquidity

Cost of Sales
Accounts Payable Turnover =
Accounts Payables

365
Average Payment Period =
Accounts Payable Turnover

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Liquidity Indicators of CCI
Liquidity Ratios-CCI 2014 2013
Trade Receivables Turnover (times) 14,2 13,5
Average Collection Period (days) 26 27
Inventory Turnover (times) 6,6 7,0
Average Days in Inventory 55 52
Trade Payable Turnover (times) 6,8 7,5
Average Payment Period (days) 54 49
Operating Cycle (days) 81 79
Cash Conversion Cycle (days) 27 30

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Working Capital Requirements

Depend on:
 Nature of business
 Nature of raw materials/ finished goods
 Process and technology
 Degree of competition
 Bargaining power of buyers

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Working Capital Financing

 Accruals
 Trade credits – suppliers
 Working capital advance by commercial
banks
 Commercial paper
 Factoring cash inflows
 Sell-and-lease back?

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 FINANCIAL
STATEMENT
ANALYSIS

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Profit Margins
 Gross Profit Margin
= Gross Profit / Net Sales
 Operating Profit Margin (EBIT to Sales)
= Operating Profit / Net Sales
 Net Profit Margin (Return on Sales)
 Net Profit / Net Sales

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Profit Margins - CCI

Profit Margins - CCI 2014 2013

Gross Profit Margin 36.4% 37,8%
Operating Margin 10.5% 11,5%
Net Income 347.204 502.169
Net Profit Margin (RoS) 5.8% 9,7%

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Profitability Ratios
 Return on Investment (RoA)
= Operating Profit / Total Assets
 Return on Investment (Net RoA)
= Net Profit / Total Assets
 Asset Turnover
= Net Sales / Total Assets
 Return on Equity (RoE)
= Net Income / Total Equity

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Profitability Ratios - CCI

Profitability Ratios - CCI 2014 2013

Return on Investment (RoA) 8,7% 8,5%
Net Return on Investment (net RoA) 4,8% 7,2%
Asset Turnover 0,8 0,7
Return on Equity (RoE) 10,3% 17,5%

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Return on Investment (RoA) - CCI
Net Profit Margin (RoS)
2014 5,8%
2013 9,7%

Net RoA
2014 4,8%
2013 7,2%

Asset Turnover
2014 0,8
2013 0,7

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Market Ratios
 Earnings per Share (EPS)
= Net Income / No. of shares of stocks
 P/E - Price-Earnings Ratio
= Price per Share/ Earnings per Share
 Market Value
= Price per Share x No. of shares of stocks

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Market Ratios - CCI

Market Ratios - CCI 2014 2013

Price per Share 50,50 51,75
Number of Shares 254.371 254.371
Earnings per Share (EPS) 1,24 1,92
Price Earnings Ratio (P/E) 41 27
Market Value (000 TL) 12.845.736 13.163.699

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Leverage Ratios
 Debt Ratio
= Total Liabilities / Total Assets
 Debt to Total Equity (D/E Ratio)
= Total Liabilities / Total Equity
 Times Interest Earned
= Operating Profit / Interest Expense

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Leverage Ratios - CCI

Leverage Ratios - CCI 2014 2013

Debt Ratio 53,2% 59,0%
Debt-to-Equity Ratio 1,14 1,44
Times Interest Earned 1,0 1,6

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Impact of Leverage
A B
Total Assets 250.000 250.000
Total Equity 250.000 125.000
Total Debt 0 125.000

EBIT 50.000 50.000

Interest Expense 0 12.500
EBT 50.000 37.500
Tax - 50% 25.000 18.750
Net Profit 25.000 18.750

Return on Equity 10% 15%

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Impact of Leverage
A B C
Total Assets 250.000 250.000 250.000
Total Equity 250.000 125.000 50.000
Total Liabilities 0 125.000 200.000

EBIT (Operating Income) 50.000 50.000 50.000

Financial Expenses 0 12.500 20.000
EBT (Earnings B.Tax) 50.000 37.500 30.000
Tax(%50) 25.000 18.750 15.000
Net Income 25.000 18.750 15.000

Return on Equity (RoE) 10% 15% 30%

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Impact of Leverage

Firm A Firm B
Total Assets 8.000.000 8.000.000
Total Debt 2.000.000 4.000.000
Total Equity 6.000.000 4.000.000

Interest Rate on Debt 10% 10%

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Impact of Leverage
Under Different Operating Profit Scenarios
ROA 5% 10% 15%

Firm A
Operating Income 400.000 800.000 1.200.000
Interest Expense 200.000 200.000 200.000
Earnings Before Tax 200.000 600.000 1.000.000
Income Tax (35%) 70.000 210.000 350.000
Net Income 130.000 390.000 650.000
ROE 2,2% 6,5% 10,8%

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Impact of Leverage

Under Different Operating Profit Scenarios

ROA 5% 10% 15%

Firm B
Operating Income 400.000 800.000 1.200.000
Interest Expense 400.000 400.000 400.000
Earnings Before Tax - 400.000 800.000
Income Tax (35%) - 140.000 280.000
Net Income - 260.000 520.000
ROE 0,0% 6,5% 13,0%

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