Financial Ratio Analysis in Turkey

This assignment delves into the influence of national accounting standards and International Financial Reporting Standards (IFRS) on the financial ratios of Turkish companies. It investigates specific impacts, including the effects of operating lease capitalization on these ratios. The analysis provides insights into how different reporting frameworks can shape the financial performance indicators used to assess companies in Turkey.

Running head: INTRODUCTORY FINANCIAL ACCOUNTING
Introductory Financial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
A. Drafting the Income Statement and Balance Sheet Statement for Schutz Building Services
for the current period:.................................................................................................................2
B.1 Depicting how financial statement could help the supplier of building to trade or not trade
with Johan:.................................................................................................................................3
B.2 Depicting the parts of financial statement, which could have positive indicator for Schutz
Building Services supplier and indicate the item that may be concern for suppliers:...............5
Reference and Bibliography:....................................................................................................10

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A. Drafting the Income Statement and Balance Sheet Statement for Schutz Building
Services for the current period:
Schutz Building Services
Income statement for the year ended
Particulars Amount Amount
Income
Service revenue $ 550,000.00
Expenses
Wages expense $ 153,500.00
Supplies expense $ 310,000.00
Motor vehicle expense $ 5,600.00
Electricity and telephone expense $ 4,000.00 $ 473,100.00
Profit $ 76,900.00
Schutz Building Services
Balance Sheet statement for the year ended
Particulars Amount Amount
Assets
Current assets
Cash at bank $ 3,800.00
Cash at hand $ 500.00
Supplies $ 18,000.00
Accounts receivable $ 80,000.00 $ 102,300.00

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Non-Current assets
Equipment $ 68,000.00
Motor vehicle $ 32,000.00 $ 100,000.00
Total Assets $ 202,300.00
Liabilities
Current liabilities
Wages payable $ 3,500.00
Accounts payable $ 30,000.00
Total Liabilities $ 33,500.00
Net Assets $ 168,800.00
Equity
Johan Schutz Capital $ 168,800.00
Equity $ 168,800.00
B.1 Depicting how financial statement could help the supplier of building to trade or not
trade with Johan:
From the evaluation of above tables, financial statement of Schutz Building Services
could be identified, which could allow suppliers to identify whether to trade or not trade with
the organisation. Schutz Building Services mainly has a total equity of $ 168,000, which can
be compared with its total liabilities that is at the levels of $ 33,500. This difference in total
liabilities and total equity directly state the financial viability of the organisation to support
payment to suppliers. This also indicates that the company has been efficiently paying their
suppliers at time, which is why the accounts payable amount is relevantly lower than the
account receivable amount. Atoom, Malkawi and Al Share (2017) stated that efficiency ratio
allows management’s ability to improve cash outflow and inflow of the organisation.

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Furthermore, net total assets of the organization are mainly at $168,800, which is
derived by deducting total assets from total liabilities. This indicates that the company's
overall assets are more than the liabilities, which depicts its financial position and strength to
support future financial obligations. The company’s current asset is mainly at the levels of $
102,300 and current liabilities at the levels of $ 33,500, which is relatively adequate to
support Schutz Building Services ability to pay their dues to its suppliers. Bodie, Kane and
Marcus (2014) indicates that companies having low current liabilities and high current assets
are able to support unexpected expenses and conduct smooth operations.
However, the main concern is relatively towards account receivable of Schutz
Building Services, as they are not concerned about receiving payments from customer. This
low concern regarding payment collection from customers could lead to cash stagnation and
directly hamper ability of the company to support its future payment. This negligence in
collecting account receivables is mainly identified as negative indicator, which portray low
capability of Schutz Building Services to support future expenses. The continued negligence
of collecting accounts receivable could eventually reduce trust of suppliers in providing credit
to Schutz Building Services. Therefore, management of Schutz Building Services needs to
increase its account receivable collection for generating adequate cash, which could support
its financial obligations (Brooks 2015).
The analysis of the financial statement also indicates weak current assets of the
organization, as accounts receivable consists of $ 80,000, while total current assets is at the
levels of $ 102,300. This indicates that every organization is unable to collect its receivables
from the customer then immediate cash stagnation could be seen. Therefore, supplier needs to
know all the revenant information about the company's ability to pay for the materials needed
to support its activities. Hence, adequate statement of cash flow can be provided by the
organization to depict its cash flow from operations, cash flow from financing activities and

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cash flow from investing activities. This could eventually help in depicting firm’s financial
ability to pay for the materials purchased from suppliers. In this context, Cengiz, Combs and
Samy (2017) mentioned that companies with high receivables are able to generate adequate
cash reserves, which could support its short term compulsions.
B.2 Depicting the parts of financial statement, which could have positive indicator for
Schutz Building Services supplier and indicate the item that may be concern for
suppliers:
Particular Formula Value
Current ratio Current Assets / Current Liabilities 3.1
Quick ratio (Current Assets - Inventory) / Current Liabilities 2.5
Gross profit margin Gross profit / Revenue 43.6%
Net profit margin Net profit / Revenue 14.0%
Accounts payable turnover ratio Purchases / Accounts payable 10.3
Accounts receivable turnover ratio Sales / Accounts receivable 6.9
Debt ratio Total Liabilities / Total Assets 16.6%
Debt to equity ratio Total Liabilities / Total Equity 19.8%
The above table mainly helps in identifying the overall financial strength of the
organisation, which could help supplier detect financial viability of Schutz Building Services.
The overall financial stability of Schutz Building Services can be identified from the above
table, which indicates its current ability to support supplier demand. The use of current ratio,
quick ratio, net profit margin and accounts payable turnover ratio could be used in detecting
financial stability of the organisation for supporting suppliers demand. Choi, Kim and Oh
(2017) mentioned that with the use of ratios stakeholders are able to detect financial stability
and financial obligations of the organisation. Moreover, ratios also help in identifying ability

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of the company to support its financial compulsions and pinpoint loopholes in their financial
stability. However, in the current scenario both financial obligation and stability of Schutz
Building Services is relevantly adequate. Nevertheless, the valuation of financial ratios could
eventually help in identifying the actual financial position of Schutz Building Services.
Current ratio:
The current ratio of the organisation is mainly at 3.1, which is relevant higher than the
minimum requirement needed by organisation. This increased current ratio is mainly helpful
in identifying financial stability of the organisation, which in turn could allow the supplier to
increase their reliability. The increased current ratio indicates that the company has enough
cash for supporting their activities. Moreover, suppliers seeing the current ratio could rely on
ability of Schutz Building Services for providing relevant payments. Czajor and Michalak
(2017) declared that current ratio allows stakeholder to detect liquidity position of the
company to take adequate decision for investment.
Quick ratio:
The quick ratio is mainly at the level of 2.5, which is relatively higher than the
minimum requirement of 1. The company mainly needed a requirement of 1 for the quick
ratio to effectively conduct its operations. This increased quick ratio value mainly indicates
inefficiency in managements work for utilising their available resources. Therefore, the
company has high cash availability for supporting their purchases and payment towards
suppliers. In this context, Ferrer and Tang (2016) mentioned that investors use quick ratio to
understand financial stability of the organisation, which helps in improving their investment
scope. Moreover, the difference in current and quick ratio could eventually help in detecting
the investment conducted by the company in maintaining their inventory. This evaluation
could help in understanding sales condition of the company.

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Gross profit margin:
The gross profit margin of the organisation is mainly at the levels of 43.6%, which
indicates the ability of the company to support its administrative expenses. The use of gross
profit could eventually help in identifying ability of the company to conduct certain expenses.
Giordani et al. (2014) mentioned that gross profit margin of the company could eventually
help investors in detecting ability of the company to generate revenue after deducting cost of
goods. The gross profit is mainly not more than 50% indicting rising cost incurred by the
organisation, which might reduce their profitability.
Net profit margin:
The net profit margin of the organisation is mainly at the levels of 14%, which is
relevantly high and indicates the profits incurred by the company. This relevant difference
between gross and net profit margin is mainly high, which indicate increased administrative
expenses of Schutz Building Services. This high administrative expense of the organisation is
mainly reducing actual profits of Schutz Building Services, which is in turn reducing its
ability to support payments. The net profit margin of the organisation is mainly stating its
eligibility to support supplier with relevant payments. Furthermore, high financial stability
could indicate ability of Schutz Building Services to support their payment structure. Goyal
and Bhatia (2016) stated that net profit margin is mainly conducted to compare financial
improvement of an organisation, which helps in detecting its financial stability. However,
suppliers seeing the low net profit obtained by Schutz Building Services could identify its
flaws, which might hamper payments to the suppliers.
Accounts payable turnover ratio:

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The accounts payable turnover ratio is mainly at the levels of 10.3, which indicates
that the company is adequately paying for its purchases. The accounts payable turnover ratio
is relevantly high stating ability of the organisation to generate higher revenues. In this
context, Ibrahim et al. (2017) mentioned that investors are able to detect payment capability
of the organisation by identifying its accounts payable turnover ratio, which needs to be high
in comparison with its peer. Therefore, the suppliers seeing high accounts payable turnover
ratio of Schutz Building Services could rely on its ability to conduct relevant payments.
Accounts receivable turnover ratio:
The accounts receivable turnover ratio of the organisation is mainly at the levels of
6.9, which indicates the low receivables conducted by the organisation. The low receivables
mainly indicate company’s ability to generate relevant cash for supporting their expenses,
which is relatively low and can increase cash reduction in future. Therefore, the evaluation of
accounts receivable turnover ratio of the organization directly indicates the problems, which
the suppliers could face while receiving their payments. Hence, the indicator depicts
incapability of Schutz Building Services to support their financial obligations and states
probability of cash shortage during payments. In this situation, Lukason, Laitinen and Suvas
(2015) stated that companies having high cash reserves are able to support their cash outflows
even if the cash inflow is reduced.
Debt ratio:
The debt ratio is mainly at 16.6%, which is relatively low indicating reduced usage of
debt in supporting Assets of Schutz Building Services. This is mainly an indication that your
organization does not borrow money to buy assets, which could be used in increasing its
production. Hence, this reduced debt collection could lead to low finance cost incurred by the
company, which in turns raises its profitability. Therefore, debt ratio is a positive indicator

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for the suppliers of the organization, as it helps in depicting its financial capability to support
payments in all conditions. Furthermore, the shallow depth accumulation also indicates the
reduced chance of the company to become insolvent, which is relevantly adequate for the
suppliers. According to Nuryani, Heng and Juliesta (2015), debt ratio is used by investors and
supplies to gauge into the financial position of the organization and detect whether in future it
could become insolvent. The minimum requirement for depth ratio is 40% for most of the
companies, as it helps in declining their finance cost, which is directly related to profitability
and cash reserves. Thus, the debt ratio of 16.6% is fairly viable for Schutz Building Services,
which is a positive sign for their suppliers.
Debt to equity ratio:
The debt to equity ratio is mainly are the levels of 19.8%, which is relatively lower
than the minimum requirements required by an organization. The low debt accumulation and
high usage of equity has allowed the organization to reduce their finance cost and increase
profitability. However, Paul and Mitra (2017) argued that debt financing is one of the major
terms which allows organization to reduce the tax expenses and increase their capacity to
retain income. In this perspective, Pech, Noguera and White (2015) further elaborated that
high debt accumulation by an organization could lead to insolvency, where the management
could not pay its debt with the current present assets. Nevertheless, the insolvency condition
is not present in the case of Schutz Building Services, where the company could generate
high revenue due to low financing cost. This is mainly a positive indicator for the suppliers,
as their payments would be conducted efficiently by Schutz Building Services.

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Reference and Bibliography:
Atoom, R., Malkawi, E. and Al Share, B., 2017. Utilizing Australian Shareholders'
Association (ASA): Fifteen Top Financial Ratios to Evaluate Jordanian Banks'
Performance. Journal of Applied Finance and Banking, 7(1), p.119.
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Brooks, R., 2015. Financial management: core concepts. Pearson.
Cengiz, H., Combs, A. and Samy, M., 2017. An Analysis of how Financial Ratios of
Companies in Turkey Are Affected by National Standards, and IFRS. International Business
Research, 10(12), p.183.
Choi, J.Y., Kim, J. and Oh, K.J., 2017. Portfolio optimization strategy based on financial
ratios. The Korean Data & Information Science Society, 28(6), pp.1481-1500.
Czajor, P. and Michalak, M., 2017. Operating Lease Capitalization-Reasons and its Impact on
Financial Ratios of WIG30 and sWIG80 Companies. Przedsiębiorczość i Zarządzanie, 18(1,
cz. 1 Practical and Theoretical Issues in Contemporary Financial Management), pp.23-36.
Ferrer, R.C. and Tang, A., 2016. An Empirical Investigation of the Impact of Financial Ratios
and Business Combination on Stock Price among the Service Firms in the
Philippines. Academy of Accounting and Financial Studies Journal, 20(2), p.104.
Giordani, P., Jacobson, T., von Schedvin, E. and Villani, M., 2014. Taking the twists into
account: Predicting firm bankruptcy risk with splines of financial ratios. Journal of Financial
and Quantitative Analysis, 49(4), pp.1071-1099.

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Goyal, S. and Bhatia, A., 2016. Analysis of Financial Ratios for Measuring Performance of
Indian Public Sector Banks. International Journal of Engineering and Management Research
(IJEMR), 6(2), pp.152-162.
Ibrahim, S.N.S., Arif, H.M. and Paino, H., 2017. The Relationship between Corporate
Governance Disclosures and Balance Sheet Ratios. Gading Journal for the Social
Sciences, 11(02), pp.33-40.
Lukason, O., Laitinen, E.K. and Suvas, A., 2015. Growth patterns of small manufacturing
firms before failure: interconnections with financial ratios and nonfinancial
variables. International Journal of Industrial Engineering and Management, 6(2), pp.59-66.
Nuryani, N., Heng, T.T. and Juliesta, N., 2015. Capitalization of Operating Lease and Its
Impact on Firm's Financial Ratios. Procedia-Social and Behavioral Sciences, 211, pp.268-
276.
Paul, S. and Mitra, G., 2017. Impact of Financial Ratios on Stock Price: A Comparative
Study with Hang Seng and Nifty Data. Research Bulletin, 43(2), pp.64-71.
Pech, C.O.T., Noguera, M. and White, S., 2015. Financial ratios used by equity analysts in
Mexico and stock returns. Contaduría y Administración, 60(3), pp.578-592.
Soares, J. and Pina, J., 2014. Credit Risk assessment and the information content of financial
ratios: a multi-country perspective. WSEAS transactions on business and economics, 11,
pp.175-187.
Yu, Q., Miche, Y., Séverin, E. and Lendasse, A., 2014. Bankruptcy prediction using extreme
learning machine and financial expertise. Neurocomputing, 128, pp.296-302.