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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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financial ratios
What is Financial Analysis?

 RATIO 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

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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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