CHAPTER 1

Financial StatementsandRatio AnalysisCHAPTER 2Chapter OutlineWhat 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 StatementsWhat are financial statements?

Why would an interested party need them?

Who would be the interested parties?

How to access them?Balance SheetWhat is it?

What are the main account categories in BS?

What are items on the BS?

Liquidity principle & Maturity matching

A = L + E

GAAP & IFRSBalance Sheet (BM) (TL)ASSETSDec 31, 2011Dec 31, 2010CURRENT ASSETS1,074,495,000814,785,000Cash & cash equivalents364,565,000257,571,000Trade receivables270,985,000192,453,000Inventories404,643,000335,999,000Other current assets34,302,00028,762,000FIXED ASSETS658,219,000557,283,000Property and equipment648,075,000549,338,000Intangible assets2,803,0002,759,000Deferred tax asset481,000349,000Other fixed assets6,860,0004,837,000TOTAL ASSETS1,732,714,0001,372,068,000Balance Sheet (BM) (TL)LIABILITIES & EQUITYDec 31, 2011Dec 31, 2010CURRENT LIABILITIES1,092,881,000853,070,000Financial liabilities07,662,000Trade payables1,019,992,000798,763,000Other current liabilities45,602,00023,259,000Income tax payable27,287,00023,586,000NONCURRENT LIABILITIES23,681,00018,566,000Reserve for emp.13,037,0009,523,000Deferred tax liabilities10,644,0009,043,000EQUITY616,152,000500,432,000TOTAL LIAB. & EQUITY1,732,714,0001,372,068,000Net Working Capital and LiquidityNet Working Capital

Liquidity

Market Value vs. Book ValueBook value

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

Comparisons with others and in time

Early warning & signals

Who else would benefit?Standardized Financial StatementsCommon size financial statements

Trend analysis

Which companies to compare with?BOSSA vs. ?

BenchmarkingCommon Size Financial Statement20112010%%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 TL86,062 TL0.02%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%100.00%Common Size Financial Statement20112010%%Sales338,887,305 TL311,395,636 TL100.00%100.00%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 Analysis201120102011 %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 TL86,062 TL100.00%100.00%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 Analysis201120102011 %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 TL1179.66%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 TL1247.13%100.00%Tax Charge of Continuing Operations-9,241,320 TL-412,951 TL2237.87%100.00%Net Income for the Year48,911,113 TL4,249,932 TL1150.87%100.00%RATIO ANALYSISRatio AnalysisLiquidity ratios

Long term solvency ratios

Turnover ratios (asset management)

Profitability ratios

Market value ratios

The Du Pont IdentityLiquidity RatiosShort term assets & liabilities

Short term creditors

Market value vs. book value

High daily volatilityLiquidity RatiosCurrent Ratio current assets current liabilities

Short term coverage ability

Tat vs. Bossa???

Optimal ratio? Too high too good?

Industry comparisonLiquidity RatiosQuick (acid-test) ratio (current assets inventories) current liabilities

Inventory liquidity

Durability of liquidity

TAT vs. Equipment producers

Cash ratio

Leverage RatiosLong term solvency

Debt-to-equity ratio total debt owners equity

Bossa? Tat?

Capital structure mix: too low too good?

Funds by creditors vs. shareholdersLeverage RatiosDebt-to-total assets (book leverage) ratio total debt total assetsShort term debt-to-total assets ratio short term debt total assetsLong term debt-to-total assets ratio long term debt total assetsTat? Bossa?Leverage RatiosLong term debt ratio long term debt long term debt + owners equity

Short term debt volatility

Account payables: trade policy

Bossa? Tat?Leverage RatiosTimes interest earned EBIT Interest Expense

EBIT

Financial distress & capacity to borrow more

Low or high?

Bossa? Tat?Leverage RatiosCash coverage ratio EBIT + Depreciation Interest Expense

Depreciation: noncash expense

Financial distress & capacity to borrow more

Low or high?

Bossa? Tat?Turnover RatiosAsset management ratios

Efficiency of asset usage

Inventory turnover

Receivables turnover

Payables turnoverTurnover RatiosInventory turnover cost of goods sold inventoryTat? Bossa?

Inventory efficiency: Low or high?

Days sales in inventory 365 days inventory turnoverTurnover RatiosReceivables turnover sales accounts receivablesDays sales in receivables 365 days receivables turnoverCollection policy: higher or lower?

Tat? Bossa?Turnover RatiosAsset turnover ratiosales total assets

Sales generation efficiency: high or low?

Tat? Bossa?Profitability RatiosEfficiency of operations & profits

Profit margin net income salesSale efficiency & costs incurred

Higher or lower?

Tat? Bossa?Profitability RatiosReturn on assets (ROA)net income total assetsAsset utilization

Higher or lower?

Tat? Bossa?Profitability RatiosReturn on equity (ROE) net income owner equityShareholder funds utilization

Higher or lower?

Tat? Bossa?Market Value MeasuresFor which companies?

EPSnet income# of shares outstandingPrice-earnings ratioprice per share earnings per share

Lower or higher? Future prospects vs. misguiding

Tat? Bossa?Du Pont IdentityROE

Profit margin X total asset turnover X equity multiplier

Operating efficiencyAsset use efficiencyFinancial leverageSUPPLEMENTARY DATA

Balance Sheet (TAT) (in TL)ASSETSDec 31, 2012Dec 31, 2011CURRENT ASSETS446,312,574428,056,413Cash & cash equivalents1,028,11012,848,217Trade receivables216,330,982167,682,986Inventories168,241,045153,078,074Other current assets45,705,82637,599,020Othe Accounts15,006,61156,848,116FIXED ASSETS150,870,556177,876,586Property and equipment126,583,962155,843,626Intangible assets764,804873,682Deferred tax asset11,711,18511,840,469Other fixed assets299,124745,663Other Accounts11,511,4818,573,146TOTAL ASSETS597,183,130605,932,999Balance Sheet (TAT) (in TL)LIABILITIES & EQUITYDec 31, 2012Dec 31, 2011CURRENT LIABILITIES269,317,636161,573,145Financial liabilities190,958,34083,245,508Trade payables67,024,53769,289,596Other current liabilities5,637,5255,812,181Provisions172,100334,000Other Accounts5,525,1342,891,860NONCURRENT LIABILITIES95,916,648208,526,190Financial liabilities85,333,334198,376,934Employment Provision10,583,31410,149,256EQUITY231,948,846235,833,664TOTAL LIAB. & EQUITY597,183,130605,932,999 Jan 1-Dec 31, 2012Jan 1-Dec 31, 2011Net Sales777,745,848691,669,955Cost of Goods Sold (-)(620,164,394)(554,380,852)GROSS PROFIT157,581,454137,289,103Sell., Mark. & Dist. Expenses (-)(100,822,430)(86,374,507)General & Adm. Expenses (-)(27,920,152)(26,363,220)Other Operating Income3,997,1894,722,660Other Operating Expenses (-)(1,525,041)(1,254,856)EBIT31,288,38428,010,312Financial Income23,347,96831,343,353Financial Expenses (-)(40,707,878)(50,412,536)EARNINGS BEFORE TAXES13,928,4748,941,129Tax Expenses (-)(3,844,147)(2,332,949)NET INCOME10,084,3276,608,180Income Statement (TAT) (in TL)Balance Sheet (BOSSA) (in TL)ASSETSDec 31, 2011Dec 31, 2010CURRENT ASSETS292,875,364241,929,341Cash & cash equivalents23,662,50022,482,127Trade receivables100,364,95582,840,393Inventories98,808,67589,077,430Other current assets4,741,35510,425,818Othe Accounts65,297,87937,103,573FIXED ASSETS186,015,622186,223,204Property and equipment148,168,865157,721,814Intangible assets4,993,8494,241,457Other fixed assets01,709,820Other Accounts32,852,90822,550,113TOTAL ASSETS478,890,986428,152,545Balance Sheet (BOSSA) (in TL)LIABILITIES & EQUITYDec 31, 2011Dec 31, 2010CURRENT LIABILITIES125,674,471134,302,882Financial liabilities79,608,41690,647,987Trade payables37,164,13836,721,183Other current liabilities4,550,6503,079,197Provisions2,031,0011,734,945Other Accounts2,320,2662,119,570NONCURRENT LIABILITIES22,265,02211,809,283Financial liabilities11,166,7272,333,333Employment Provision11,098,2959,475,950EQUITY330,951,493282,040,380TOTAL LIAB. & EQUITY478,890,986428,152,545 Jan 1-Dec 31, 2011Jan 1-Dec 31, 2010Net Sales338,887,305311,395,636Cost of Goods Sold (-)(243,929,044)(251,389,146)GROSS PROFIT94,958,26160,006,490Sell., 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 Income41,338,0118,419,606Other Operating Expenses (-)(14,759,878)(6,140,368)EBIT52,794,6944,475,408Financial Income30,833,96014,682,115Financial Expenses (-)(25,476,221)(14,494,640)EARNINGS BEFORE TAXES58,152,4334,662,883Tax Expenses (-)(9,241,320)(412,951)NET INCOME48,911,1134,249,932Income Statement (BOSSA) (in TL) ADDITIONAL MATERIALBalance Sheet (MGROS) (in 1,000 TL)ASSETSDec 31, 2011CURRENT ASSETS1,797,570Cash & cash equivalents1,010,255Trade receivables67,174Inventories679,000Other current assets41,141FIXED ASSETS3,683,394Property and equipment1,118,881Intangible assets250,270Goodwill2,251,427Other fixed assets62,816TOTAL ASSETS5,480,964Balance Sheet (MGROS) (in 1,000 TL)LIABILITIES & EQUITYDec 31, 2011CURRENT LIABILITIES1,578,694Financial liabilities13,796Trade payables1,387,042Other current liabilities98,555Provisions53,505Other Accounts25,796NONCURRENT LIABILITIES2,706,563Financial liabilities2,573,754Employment Provision10,516Other Accounts122,293EQUITY1,195,707TOTAL LIAB. & EQUITY5,480,964 Jan 1-Dec 31, 2011Net Sales5,753,112Cost of Goods Sold (-)(4,258,622)GROSS PROFIT1,494,490Sell., Mark. & Dist. Expenses (-)(1,030,684)General & Adm. Expenses (-)(211,139)Other Operating Income8,955Other Operating Expenses (-)(29,210)EBIT232,412Financial Income176,935Financial Expenses (-)(725,205)EARNINGS BEFORE TAXES(315,858)Tax Expenses (-) ***(53,356)NET INCOME(369,214)Income Statement (MGROS) (in 1,000 TL)Liquidity RatiosCurrent ratio?

Quick (acid-test) ratio?

Leverage RatiosDebt-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 RatiosLong term debt ratio?

Times interest earned

Cash coverage ratio?

Turnover RatiosInventory turnover ratio?

Days sales in receivables

Receivables turnover ratio?

Days sales in receivables?

Asset turnover ratio?Profitability RatiosProfit margin?

ROA?

ROE?Market Value MeasuresAssume Migros has 2,000,000 shares outstanding

EPS?

Price-earnings ratio?END OF CHAPTER