Financial statements are the most fundamental source of information about the financial health of companies operating in Turkey. However, it is the analysis of this information through financial ratios that makes the data presented in these statements meaningful.
Financial ratios reveal a company’s performance in key areas such as liquidity, profitability, efficiency, and return on investment. In this article, we explain the financial ratios commonly used in company management and investment decisions in Turkey and what they mean.
Liquidity Ratios: Short-Term Payment Capacity of Companies in Turkey
Liquidity ratios measure the ability of companies in Turkey to pay their short-term debts. Banks, investors, and suppliers, in particular, attach great importance to these ratios.
- Current Ratio: The ratio of current assets to short-term liabilities. In Turkey, a ratio above 1 is generally considered positive.
- Acid-Test (Liquidity) Ratio: The ratio of current assets excluding inventories to short-term debt.
- Cash Ratio: Measures a company’s ability to pay its debts using only cash and similar assets.
- Defensive Margin Ratio: Indicates how many days a company can continue its operations using its cash and similar resources. This ratio is of great importance in countries such as Turkey, where currency fluctuations are intense.
Activity Ratios: Measuring Business Efficiency in Turkey
Activity ratios show how efficiently a company uses its resources in Turkey.
Financial statements are the most basic source of information about the financial health of companies operating in Turkey. However, it is the analysis of this information through financial ratios that makes the data meaningful.
Financial ratios reveal a company’s performance in key areas such as liquidity, profitability, efficiency, and return on investment. In this article, we explain the financial ratios frequently used in company management and investment decisions in Turkey and what they mean.
Liquidity Ratios: Short-Term Payment Capacity of Companies in Turkey
Liquidity ratios measure the ability of companies in Turkey to pay their short-term debts. Banks, investors, and suppliers, in particular, attach great importance to these ratios.
- Current Ratio: The ratio of current assets to short-term liabilities. In Turkey, a ratio above 1 is generally considered positive.
- Acid-Test (Liquidity) Ratio: Shows the ratio of current assets excluding inventories to short-term liabilities.
- Cash Ratio: Measures a company’s ability to pay its debts with only cash and similar assets.
- Defensive Gap Ratio: Shows how many days a company can continue its operations with its cash and similar resources. This ratio is particularly important in countries such as Turkey, where currency fluctuations are common.
Activity Ratios: Measuring Business Efficiency in Turkey
Activity ratios are used to analyze how effectively a company uses its resources in Turkey. These ratios also provide guidance on the management of working capital.
- Receivables Turnover Ratio: This ratio is particularly important in certain sectors in Turkey where customer collection periods can be long.
- Days Sales Outstanding (DSO): This is the average collection period for receivables. The longer the period, the greater the cash flow risk.
- Inventory Turnover Ratio: This indicates how long it takes for inventory to be sold and replenished.
- Inventory Holding Period: Indicates the average number of days an item remains in inventory.
- Payables Turnover Ratio: Measures how quickly payments are made to suppliers.
- Payables Payment Period: This is a critical ratio in supply chain management in Turkey.
- Cash Cycle: Measures the time it takes for cash to return to the business. In Turkey’s high inflation and interest rate environment, keeping this cycle short provides a significant advantage.
Asset Utilization Ratios: What is the Level of Investment Efficiency in Turkey?
The way to understand how efficiently companies use their assets to generate income is through analysis using financial ratios in Turkey.
- Working Capital Turnover Ratio: Measures how quickly net working capital is converted into sales.
- Fixed Asset Turnover Ratio: Analyzes the contribution of fixed investments to income.
- Total Asset Turnover Ratio: Shows the sales generation capacity of all of the company’s assets.
Profitability Ratios: How Much Do Companies Earn in Turkey?
Financial ratios in Turkey offer the opportunity to evaluate your company’s profitability not only through balance sheets but also through income statement analyses.
- Gross Profit Margin: Shows the profitability remaining after product costs.
- Operating Profit Margin: Reflects the share of profit remaining after operating expenses.
- Pre-tax Profit Margin: Shows the profitability achieved by the company, including non-operating income and expenses.
- Net Profit Margin: Represents the profit remaining to the company after all taxes and expenses. Tax regulations and financing costs in Turkey directly affect this ratio.
Return Rates: How Much Do Capital and Investments Earn in Turkey?
For investors in Turkey, returns on equity and total assets are of great importance.
- Return on Assets (ROA): Shows how much profit the company generates with its total assets.
- Return on Equity (ROE): Indicates how much profit was generated from the capital invested in the company by its shareholders.
- Return on Investment (ROI): Indicates the efficiency of the investments made by the company.
- Return on Equity for Shareholders: Measures the net return on the capital owned by the shareholders.
The Importance of Tax and Interest Rates in Turkey
Due to the variability of tax rates and interest rates in Turkey and the impact of inflation, the following rates should be monitored closely:
- Tax Burden Ratio: Indicates the decrease in after-tax profit compared to pre-tax profit.
- Interest Burden Ratio: Reveals how credit costs affect profitability.
- EBIT Margin: Shows the actual profitability from operations.
Make Strategic Decisions with Financial Data in Turkey
It is critical for companies operating in Turkey to regularly monitor their financial ratios in order to remain strong in a dynamic economic environment. These ratios not only evaluate past performance, but also help you shape your future strategies.
If you would like to regularly monitor these ratios and strengthen your decision-making processes with analyses tailored to your company, please contact us.
used to analyze how effectively a company uses its assets. These ratios also provide guidance on the management of working capital.
- Receivables Turnover Ratio: This ratio is particularly important in certain sectors in Turkey where customer collection periods can be long.
- Accounts Receivable Days (DSO): This is the average collection period for accounts receivable. The longer the period, the greater the cash flow risk.
- Inventory Turnover Ratio: This shows how quickly inventory is sold and replenished.
- Inventory Holding Period: This indicates the average number of days an item remains in the company’s inventory.
- Accounts Payable Turnover Ratio: Measures how quickly payments are made to suppliers.
- Accounts Payable Days: This is a critical ratio in terms of supply chain management in Turkey.
- Cash Conversion Cycle: Measures the time it takes for a company’s cash to return to operations. In Turkey’s high inflation and interest rate environment, keeping this cycle short provides a significant advantage.
Asset Utilization Ratios: What is the level of investment efficiency in Turkey?
The way to understand how efficiently companies use their assets to generate income is through an analysis of financial ratios in Turkey.
- Working Capital Turnover Ratio: Measures how quickly net working capital is converted into sales.
- Fixed Asset Turnover Ratio: Analyzes the contribution of fixed investments to income.
- Total Asset Turnover Ratio: Shows the sales generation capacity of all of the company’s assets.
Profitability Ratios: How Much Are Companies Earning in Turkey?
Financial ratios in Turkey offer the opportunity to evaluate your company’s profitability not only through balance sheets but also through income statement analyses.
- Gross Profit Margin: Shows the profitability remaining after product costs.
- Operating Profit Margin: Reflects the share of profit remaining after operating expenses in revenue.
- Pre-tax Profit Margin: Shows the profitability of the company together with non-operating income and expenses.
- Net Profit Margin: Expresses the profit remaining to the company after all taxes and expenses. Tax regulations and financing costs in Turkey directly affect this ratio.
Return Ratios: How Much Do Capital and Investments Earn in Turkey?
For investors in Turkey, returns on equity and total assets are of great importance.
- Return on Assets (ROA): Indicates how much profit the company generates with its total assets.
- Return on Equity (ROE): Indicates how much profit is generated from the capital contributed by the shareholders to the company.
- Return on Investment (ROI): Indicates the efficiency of the investments made by the company.
- Return on Equity for Shareholders: Measures the net return on the capital belonging to the shareholders.
The Importance of Tax and Interest Rates in Turkey
Due to the variability of interest rates and the impact of inflation, the following rates should be monitored closely in Turkey:
- Tax Burden Ratio: Shows how much after-tax profit has decreased compared to pre-tax profit.
- Interest Burden Ratio: Reveals how credit costs affect profitability.
- EBIT Margin: Shows the actual profitability from operations.
Make Strategic Decisions with Financial Data in Turkey
It is critical for companies operating in Turkey to regularly monitor their financial ratios in order to remain strong in a dynamic economic environment. These ratios not only evaluate past performance, but also help shape your strategies for the future.
If you would like to regularly monitor these ratios and strengthen your decision-making processes with customized analyses for your company, please contact us.
