What is Financial
Analysis?
Financial
analysis is the analysis made to plan the future of your company in line with
the current situation, by examining the balance sheet items in your company's
financial statements, the results of your activities, the financial situation
of the company, how to improve the deficiencies, the creation of action plans
for these deficiencies.
Even though
financial analysis is a serious guide especially for SMEs, today many SMEs
unfortunately prefer financial burden rather than financial analysis. First of
all, every visionary business should analyze its current situation well and
manage its finances correctly while planning the future.
The purpose of
financial analysis varies depending on who is doing the analysis.
If the person
performing the financial analysis is the Bank; The purpose of the analysis is
to measure the repayment power of the firm with which it will enter into a
credit relationship. In bank loan analysis, the balance between current assets
and short-term debts, the structure of assets, capital structure, borrowing
ratios, debt/equity balance are important analysis items. This analysis is done
by transferring the information of your bank personnel and finance manager for
whom you are requesting a loan. In financial analysis, you should have a good
grasp of the questions asked by the bank and give clear answers.
If the person who
made the financial analysis is the Management; The purpose of this analysis is
to determine whether the desired point has been reached in line with the
decisions taken by the management staff. As a result of this analysis, the
management staff measures the success or failure of their activities. It sees
whether the decisions taken and the goals given are realized or not. Makes and
implements decisions according to the results of the analysis. It sets new
strategies or makes updates to existing strategies.
If the person who
made the financial analysis is an Investor; The purpose of this analysis is to
measure the profit per share of the investment to be made by the person or
institution that will become a partner in a company and to measure the
efficiency of the investment.
Companies that
regularly perform financial analysis; detects financial threats in advance,
clearly sees whether it can profit from its activities and determines an action
plan, has the opportunity to examine the expense items in detail, draws a road
plan to correct the deficiencies in its financial data, knows what the
financial analysis ratios mean and has the opportunity to compare according to
the sector values .
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| What is Financial Analysis? |
Ratio Analysis is
a static analysis and gives information about your company's liquidity,
solvency and financial management.
Current rate
Current rate; It
is the ratio obtained by dividing the current assets, which show the liquid
assets of the companies, by their short-term liabilities.
Current Ratio =
Current Assets / Short Term Liabilities
Cash Ratio
The cash ratio
shows how much of the firm's liquid assets and short-term debts can be paid in
case of any contraction in market and economic conditions.
Another name for
the cash ratio is the liquidity ratio. The ratio should not fall below 0.20.
The cash ratio reflects the firm's immediate cash situation.
Cash Ratio =
Liquid Assets / Short Term Liabilities
Acid-Test Ratio
(Liquidity Ratio)
The Acid-Test
ratio is the ratio obtained by subtracting the stocks from the current assets
of the firm and then dividing by the short-term liabilities.
Acid-Test
(Liquidity Ratio) = Current Assets - Inventories / Short-Term Liabilities
Stock Dependency
Ratio
Stock dependency
ratio; If the acid - test ratio is less than 1, it is the ratio that shows what
percentage of the stocks must be sold in order to pay the short-term debts.
Inventory
Dependency Ratio = [ Short-Term Liabilities - ( Liquid Securities + Securities
) ] / Inventories
HORIZONTAL ANALYSIS
Horizontal
analysis is the comparative arrangement of the financial data values of a
company for at least two periods and examining and evaluating the changes in
the relevant periods.
With the
horizontal analysis method, it allows us to determine the development and
deficiencies of the company within the relevant periods. Comparing the
financial statements makes us have a foresight about the future in the light of
past data.
There are several
important points to get correct results in the comparative table analysis
method. E.g;
I. The period durations being compared must be of the same length. In other words, you can compare the 2019/December financial statements with the 2018/December financial statements. If you compare the December 2019 financial statements with the 2018/June period statements, you cannot obtain accurate results.
II. Accounting items in the financial statements must be prepared according to the same principles.
III. Figures need to be adjusted for inflation.
IV. It must be calculated in the same currency.
It is used
effectively in comparative analysis together with ratio analysis, especially in
bank credit evaluations.
How is horizontal
analysis calculated and interpreted?
If horizontal
analysis (comparative tables analysis) is made for more than two years, either
the starting year is taken as the base or the year preceding each year is
accepted as the base year. The differences between the items and the percentage
of change are determined, then the reasons that may lead to these changes are
sought. After the changes in the items are calculated, these changes should be
interpreted as positive or negative.
junipermedia A.Ş.
A horizontal analysis of the checks received and domestic sales was made based
on the last three years' financial data of the checks received at the company
and domestic sales.
The formula to be
used in the horizontal analysis calculation is as follows:
Horizontal
Analysis Percentage = [(t2 - t1) / t1] x 100
t1: base year
t2: next year
I. In the comparative analysis method, if there is no number in the first of the years compared and there is a number in the second, nothing (-) is written to the percentage change.
II. In the comparative analysis method, if there is a number in the first of the years compared and there is no number in the second, the percentage difference is always written ( -100 ).
III. In the comparative analysis method, if the second is twice the first year in the years compared, the percentage change is always written as ( +100 ).
VERTICAL ANALYSIS
Vertical analysis
analyzes the company's financial data for at least 2 periods and analyzes its
percentage increases and decreases.
With the vertical
analysis method, the items in the financial table are proportioned to the total
in the same financial table and their percentage values are found. That is,
it shows us the percentage value of the buyers item in the asset section within
the total assets. For example, if the total assets of a company are 3.500.000
TL and the buyers item in the asset is worth 1.500.000 TL, we can say that the
Buyers item constitutes 43% of the total assets.
Vertical analysis
is important as it shows the distribution of the company's resources. With the
vertical analysis method, it reveals how much of the company's resources are in
current assets, how much is in tangible assets, how it has changed over the
years, and the actions that can be taken for the future.
In the analysis
with the vertical analysis method, the balance sheet total is accepted as 100
and the percentage distribution of each asset/liability value is made. In the
vertical analysis of the income statement, the net sales of the company are
accepted as 100.
junipermedia A.S.
The numerical values that make up the active part of the company's balance
sheet are included. According to the results of the vertical analysis made
according to these financial data; If we accept the company's assets as 100,
according to the financial data of 2019, 65% of this asset is covered by fixed
assets and 35% by current assets. When compared to 2018, the current assets of
the firm have increased and fixed assets have decreased. When we examine the
distribution of 35% current assets in 2019, we will see that a very large part
of 24% belongs to stocks. Why did these stocks increase compared to the
previous year? Does the stock balance represent the real value? What is the
distinction between finished and semi-finished products? When will this stock
drop? Is the stock high because a new project has been purchased? Do you need
to analyze the answers to these questions?
In vertical
analysis, the distribution among the related balance sheet items in the
company's assets, liabilities and income statement reveals how your company is
managed. For example, in credit evaluations in banks, a certain share in the
active balance sheet items is expected to be in the banks item. However, this
rate is very low in SME segment companies operating in our country. Generally,
active weight in current assets is in stocks and checks received.
TREND ANALYSIS
What is Trend
(Trend Percentages) Analysis? How is it calculated?
Trend Analysis is
one of the methods used in financial analysis of companies. In trend analysis,
the developments of the company are analyzed over the years. Unlike comparative
tables analysis, longer years are compared in trend analysis. Generally, the
review period varies between 7-10 years.
Train Percentage
= ( Current Year Number / Base Year Number ) x 100
In the trend
analysis method, a base year is accepted and the amounts belonging to the
relevant year are accepted as 100, and the percentage change of the data in
other years compared to the base year is calculated. In this way, the increase
and decrease of the items in the financial statements according to the years
are determined, giving the opportunity to examine the development and
deficiencies of my company.
In trend
analysis, if the review period is long, the analysis gives more successful
results.
It gives more
accurate results if the balance of the base year and the compared year in the
market are in the same direction while trend analysis is being made. For
example, comparing a year with good markets and a year in crisis does not yield
accurate and effective results in trend analysis.
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