BF 305 FINANCIAL STATEMENT

ANALYSIS
•CHAPTER 6

•Prof. Dr. Yüksel Akay ÜNVAN

 Cash Flows Analysis
• Like many of the ratios based on balance sheet numbers,
the current and quick ratios tell us the position at the
balance sheet date.
• This is an inherent weakness of such ratios because they
fail to reveal what has happened over the course of the
year.
• The cash flow statement highlights whether a company’s
operations are a consumer of cash.
• It can also show if a company is heading for difficult
times in respect of its ability to pay its debts as they fall
due.
• Cash flows analysis can help in this process.
 Cash flow ratios are grouped
under four major categories
Some such as;
Ratios for 1. Liquidity Ratios (Likidite Oranları)
2. Efficiency or Activity Ratios (Verimlilik
Cash Flow veya Faaliyet Oranları)
3. Profitability or Operation Ratios
Analysis (Kârlılık veya Çalışma Oranları)
4. Coverage or Solvency Ratios
(Karşılama veya Ödeme Gücü Oranları)
 Ratios for Cash Flow Analysis
1. Liquidity Ratios
Liquidity ratios measure a company's short-term ability to pay its
maturing obligations.

Short term creditors such as bankers and suppliers are

interested in assessing liquidity of business.

It is affected by the timing of cash inflows and outflows along

with prospects of future performance.

Common ratios to measure liquidity are the current ratio, acid

test ratio, and cash ratio.

These ratios are based on accrued information and are

calculated at a particular point of time.
Ratios for Cash Flow Analysis
1. Liquidity Ratios
The following cash flow ratios will measure liquidity of
a company.
• Operating Cash Flow Ratio (Faaliyet Nakit Akış Oranı)
• Financial Liquidity (Finansal Likidite)
• Financial Flexibility (Finansal Esneklik)
• Cash Ratio (Nakit Oranı)
• Cash Debt Coverage Ratio (Nakit Borç Karşılama Oranı)
• Cash Interest Coverage Ratio (Nakit Faiz Karşılama Oranı)
Ratios for Cash Flow Analysis
1. Liquidity Ratios
Operating Cash Flow Ratio (Faaliyet Nakit Akış Oranı): These ratio analyse how much
cash was generated over a period of time and compares that to near-term obligations.

Calculated this ratio information will come from cash flows statement and balance sheet.

Generate cash from operating cash flow = Cash flow from operations (Faaliyetlerden Nakit Akışı)
(Faaliyetlerden nakit akışından elde edilen nakit) Current Liabilities (Kısa Vadeli Borçlar)
Ratios for Cash Flow Analysis
1. Liquidity Ratios
Financial Liquidity (Finansal Likidite): Readers of financial statements
often assess liquidity by using the current cash debt coverage.
It indicates whether the company can pay off its current liabilities from
its operations in a given year.
Current cash debt coverage = Net cash flow from operations (Faaliyetlerden net nakit akışı)
(Mevcut Nakit Borç Karşılama) Average Current Liabilities (Ortalama kısa vadeli borçlar)

The higher the current cash debt coverage, the less likely a company
will have liquidity problems.
Ratios for Cash Flow Analysis
1. Liquidity Ratios
Financial Flexibility (Finansal Esneklik): The cash debt coverage provides information
on financial flexibility.

It indicates a company’s ability to repay its liabilities from net cash provided by
operating activities, without having to liquidate the assets employed in its operations.

Cash debt coverage = Net cash flow from operations (Faaliyetlerden net nakit akışları)
(Nakit Borç Karşılama) Average Total Liabilities (Ortalama toplam yükümlülükler)

The higher this ratio, the less likely the company will experience difficulty in meeting its
obligations as they come due.
Ratios for Cash Flow Analysis
1. Liquidity Ratios
Cash Ratio (Nakit Oran): The cash ratio measures the portion of
short term debt that can be paid using available cash.
This ratio determines cash available to cover current liabilities.

Cash Ratio (Nakit Oranı) = Available Cash (Mevcut Nakit)

Current Liabilities (Kısa Vadeli Borçlar)

The higher the ratio, the better is the coverage of the current
liabilities.
 Ratios for Cash Flow Analysis
1. Liquidity Ratios
Cash Debt Coverage Ratio (Nakit Borç Karşılama Oranı): The cash debt
coverage ratio shows the percent of debts that current cash flows from
operations (less dividends) can retire.

Cash Debt Coverage Ratio = Cash Flow From Operating-Dividends (Faaliyetlerden Nakit Akışı-Temettü)
(Nakit Borç Karşılama Oranı) Total Debt (Toplam Borç)
 Ratios for Cash Flow Analysis
1. Liquidity Ratios
Cash Interest Coverage (Nakit Faiz Karşılama): This ratio
indicates the cash actually available to meet interest
charges.
Cash Interest Coverage Ratio = Cash Flow From Operating+Interest (Faaliyetlerden nakit akışı+Faiz)
(Nakit Faiz Karşılama Oranı) Interest (Faiz)
Ratios for Cash Flow Analysis
1. Liquidity Ratios
Example 1: Presented below are selected accounts of Whiteday Air Corporation at December
31, 2020.
Net Sales (Net Satışlar) 148.000 Inventory (Stoklar) 37.500
Cost of goods sold (Satışların Maliyeti) 98.000 Property, plant and equipment (Mülkiyet, Tesis 41.500
ve Ekipman)
Operating income (Faaliyet Gelirleri) 17.000 Current liabilities (Kısa Vadeli Yabancı Kaynaklar) 46.750
Profit for the period (Dönem Kârı) 19.000 Total assets (Toplam Varlıklar) 135.000
Net income (Net Gelir/Kâr) 14.500 Shareholders’ equity (Özkaynaklar) 85.000
Account receivable (Alacak Hesabı) 25.000 Long-term liabilities (Uzun Vadeli Yabancı Kaynaklar) 3.250
Cash and cash equivalent (Nakit ve Nakit Benzerleri) 28.000 Prepaid expenses (Önceden Ödenmiş Giderler) 3.000
Cash flow from operating activities 10.150 Interest expenses (Faiz Giderleri) 20.000
(Faaliyetlerden Nakit Akışları)
Debt repayment (Borç Geri Ödemesi) 1.500 Rent expenses (Kira Giderleri) 13.000
Capital expenditure (Sermaye Harcamaları) 14.500 Dividend paid (Ödenen Temettü) 4.500

Required: Calculate cash flow liquidity ratios for Whiteday Air Corporation.
Ratios for Cash Flow Analysis
1. Liquidity Ratios
Solution of Example 1:
Operating Cash Flow Ratio= Cash Flow From Operating = 10.150 = 0,217
Current Liabilities 46.750

Cash Ratio= Available Cash = 28.000 = 0,598

Current Liabilities 46.750

Cash Debt Coverage Ratio= Cash Flow From Operating-Dividends = 10.150-4.500 = 0,113
Total Debt 46.750+3.250

Cash Interest Coverage Ratio= Cash Flow From Operating+Interest Expenses = 10.150+20.000 = 1,51
Interest Expenses 20.000
Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
Efficiency or activity refers to how productive a company is in using its assets.
Common ratios based on accrual data are asset turnover, receivable turnover,
and inventory turnover.

Cash flow activity ratios measure a company's ability to utilize its existing
assets.

Using these ratios will help an analyst monitor the production of cash from
operating activities free of the potential accrual accounting distortions.
Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios

The following cash flow ratios will measure

efficiency using cash flow data.
• Cash Return on Assets (Varlıklardan Nakit Getirisi)
• Cash Return on Fixed Assets (Duran Varlıklardan Nakit Getirisi)
• Cash Reinvestment Ratio (Nakit Yeniden Yatırım Oranı)
• Cash Turnover Ratio (Nakit Devir Oranı)
• Cash Balance or Days Cash Balance (Nakit Bakiyesi)
Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
• Cash Return on Assets (Varlıklardan Nakit Getirisi): This ratio indicates the
percentage of cash generated from using total assets.

•Cash Return on Assets = Cash flow from operations (Faaliyetlerden Nakit Akışı)
(Varlıklardan Nakit Getirisi) Avarage Total Assets(Ortalama Toplam Varlıklar)
 Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
• Cash Return on Fixed Assets (Duran Varlıklardan Nakit Getirisi): This ratio
indicates the percentage of cash generated from using total fixed assets.

•Cash Return on Fixed Assets = Cash flow from operations (Faaliyetlerden Nakit Akışları)
(Duran Varlıklardan Nakit Getirisi) Avarage Total Fixed Assets (Ortalama Toplam Duran Varlıklar)
 Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
• Cash Reinvestment Ratio (Nakit Yeniden Yatırım Oranı): This ratio measures the
degree to which net income in the form of cash is reinvested into the business.

•Cash Reinvestment Ratio= Increases fixed assets and working capital (Duran Varlıklardaki ve işletme sermayesindeki artış)
(Nakit Yeniden Yatırım Oranı) Net income + Depreciation (Net Kâr + Amortisman)
 Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
• Cash Turnover Ratio (Nakit Devir Oranı): This ratio will show the number of
times cash turns over in a year.

•Cash Turnover Ratio= Cost of Goods Sold – Depreciation (Satışların Maliyeti – Amortisman)
(Nakit Devir Oranı) Available Cash (Mevcut Nakit)
 Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
• Cash Balance or Days Cash Balance: This ratio giving cash turnover in number of
days, complements cash turnover.

•Cash Balance or Days Cash Balance = Available Cash x 365 (Mevcut Nakitx365)
(Nakit Bakiyesi) Cost of Goods Sold – Depreciation (Satışların Maliyeti –Amortisman)
Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
Example 2: Presented below are selected accounts of Whiteday Air Corporation at December
31, 2020.
Net Sales (Net Satışlar) 148.000 Inventory (Stoklar) 37.500
Cost of goods sold (Satışların Maliyeti) 98.000 Property, plant and equipment (Mülkiyet, Tesis ve 41.500
Ekipman)
Operating income (Faaliyet Gelirleri) 17.000 Current liabilities (Kısa Vadeli Yabancı Kaynaklar) 46.750
Profit for the period (Dönem Kârı) 19.000 Total assets (Toplam Varlıklar) 135.000
Net income (Net Gelir/Kâr) 14.500 Shareholders’ equity (Özkaynaklar) 85.000
Account receivable (Alacak Hesabı) 25.000 Long-term liabilities (Uzun Vadeli Yabancı Kaynaklar) 3.250
Cash and cash equivalent (Nakit ve Nakit Benzerleri) 28.000 Prepaid expenses (Önceden Ödenmiş Giderler) 3.000

Cash flow from operating activities (Faaliyetlerden 10.150 Increase in fixed asset and working capital 20.000
Nakit Akışları) (Duran varlık ve çalışma sermayesindeki artış)
Debt repayment (Borç Geri Ödemesi) 1.500 Rent expenses (Kira Giderleri) 13.000
Capital expenditure (Sermaye Harcamaları) 14.000 Dividend paid (Ödenen Temettü) 4.500

Required: Calculate cash flow activity ratios for Whiteday Air Corporation.
Ratios for Cash Flow Analysis
2. Efficiency or Activity Ratios
•Solution of Example 2:
•Cash Return on Assets = Cash flow from operations = 10.150 = 7,51%
Avarage Total Assets 135.000

•Cash Return on Fixed Assets = Cash flow from operations = 10.150 = 24,46%
Avarage Total Fixed Assets 41.500

•Cash Reinvestment Ratio= Increases fixed assets and working capital = 20.000__ =59,70%
Net income + Depreciation 14.500+19.000

•Cash Turnover Ratio= Cost of Goods Sold – Depreciation = 98.000-19.000 = 2,82

Available Cash 28.000

•Cash Balance or Days Cash Balance = Available Cash x 365 = 28.000 x 365 = 129,36 days
Cost of Goods Sold – Depreciation 98.000-19.000
Ratios for Cash Flow Analysis
3. Profitability or Operations Ratios

Profitability or operation refers to a company's ability to generate an

adequate return on invested capital.

The ratios measure a company's degree of success or failure in its

operation.

Income of the lack of it affects the company's ability to obtain loans, its
liquidity position, and its ability to grow. An analyst examines operations
ratios such as percentage cost of sales and profit margin.
Ratios for Cash Flow Analysis
3. Profitability or Operations
Ratios

The following cash flow ratios will help

in measuring profitability:
Earnings Quality (Kazanç Kalitesi)
Cash Flow from Sales to Sales
(Satışlardan Satışlara Nakit Akışı)
Cash Flow Margin (Nakit Akış Marjı)
Ratios for Cash Flow Analysis
3. Profitability or Operations Ratios
Earnings Quality: This ratio measures the collect ability of net
income. It is the percentage of net income converted to cash.

Earnings Quality = Cash flow from operations (Faaliyetlerden Nakit Akışları)

(Kazanç Kalitesi) Net Income (Net Kâr)
 Ratios for Cash Flow Analysis
3. Profitability or Operations Ratios
Cash Flow from Sales to Sales: This ratio is almost the same as cash return on
sales ratio. This ratio indicates the degree to which sales generate cash retained
by the business.

Cash Flow from Sales to Sales=Cash flow from operations-Dividends (Faaliyetlerden nakit akışları-Temettü)
(Satışlardan Satışlara Nakit Akışı) Total Sales (Toplam Satışlar)
Ratios for Cash Flow Analysis
3. Profitability or Operations Ratios
Cash Flow Margin: This is similar to the profit margin. However,
instead of net income, cash flow margin will use cash flow from
operations to show the percentage of cash flows from operation over
the total revenues.

Cash Flow Margin = Cash flow from operations (Faaliyetlerden Nakit Akışları)
(Nakit Akış Marjı) Total Revenues (Toplam Hasılat/Satışlar)
Ratios for Cash Flow Analysis
3. Profitability or Operations Ratios
Example 3: Presented below are selected accounts of Whiteday Air Corporation at December
31, 2020.
Net Sales (Net Satışlar) 148.000 Inventory (Stoklar) 37.500
Cost of goods sold (Satışların Maliyeti) 98.000 Property, plant and equipment (Mülkiyet, Tesis ve 41.500
Ekipman)
Operating income (Faaliyet Gelirleri) 17.000 Current liabilities (Kısa Vadeli Yabancı Kaynaklar) 46.750
Profit for the period (Dönem Kârı) 19.000 Total assets (Toplam Varlıklar) 135.000
Net income (Net Gelir/Kâr) 14.500 Shareholders’ equity (Özkaynaklar) 85.000
Account receivable (Alacak Hesabı) 25.000 Long-term liabilities (Uzun Vadeli Yabancı Kaynaklar) 3.250
Cash and cash equivalent (Nakit ve Nakit Benzerleri) 28.000 Prepaid expenses (Önceden Ödenmiş Giderler) 3.000

Cash flow from operating activities (Faaliyetlerden 10.150 Interest expenses (Faiz Giderleri) 20.000
Nakit Akışları)
Debt repayment (Borç Geri Ödemesi) 1.500 Rent expenses (Kira Giderleri) 13.000
Capital expenditure (Sermaye Harcamaları) 14.000 Dividend paid (Ödenen Temettü) 4.500

Required: Calculate cash flow profitability ratios for Whiteday Air Corporation.
 Ratios for Cash Flow Analysis
3. Profitability or Operations Ratios
Solution of Example 3:

Earnings Quality Ratio = Cash flow from operating = 10.150 = 70%

Net Income 14.500

Cash Flow from Sales to Sales = Cash flow from operating - Dividends = 10.150 - 4.500 = 3,82%
Total Sales 148.000

Cash Flow Margin = Cash flow from operating = 10.150_ =6,86%

Total Sales 148.000
Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios
Coverage or solvency refers to a company’s long-run financial
viability and its ability to cover long-term obligations.

It measures the degree to which long-term creditors and

investors are protected.

A positive ratio indicates a company’s ability to protect its

investors and creditors.
Ratios for Cash Flow
Analysis
4. Coverage or Solvency
Ratios

The following cash flow ratios will measure

coverage:
Cash Flow to Long Term Debts
(Uzun Vadeli Borçlara Nakit Akışı)
Cash Dividend Coverage Ratio
(Nakit Temettü Karşılama Oranı)
Cash Return to Shareholders

(Özkaynaklara Nakit Getirisi)

Cash Flow Per Share
(Hisse Başına Nakit Akışı)
 Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios

Cash Flow to Long Term Debts: The ratio appraises the adequacy of available funds to pay
long-term obligations.

Cash Flow to Long Term Debts = Cash flow from operations (Faaliyetlerden Nakit Akışları)
(Uzun Vadeli Borçlara Nakit Akışı) Long Term Debts (Uzun Vadeli Borçlar)
 Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios

Cash Dividend Coverage Ratio: This ratio measures the company’s ability to pay dividends
from cash derived from operations.

Cash Dividend Coverage Ratio = Cash flow from operations (Faaliyetlerden nakit akışları)
(Nakit Temettü Karşılama Oranları) Dividends (Temettü)
 Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios

Cash Return to Shareholders: This ratio indicates the amount of cash generated from
shareholders’ investments.

Cash Return to Shareholders: = Cash flow from operations (Faaliyetlerden nakit akışları)
(Özkaynaklara Nakit Getirisi) Shareholders’ Equity (Özkaynaklar)
 Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios

Cash Flow per Share: Indicates the earnings per share (EPS) directly related to cash flows. This
ratio will complement the EPS ratio.

Cash Flow per Share = Cash flow from operations (Faaliyetlerden Nakit Akışları)_________
(Hisse Başına Nakit Akışı) Average Number of Common Shares Outstanding (Ortalama Hisse Senedi Sayısı)
Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios
Example 4: Presented below are selected accounts of Whiteday Air Corporation at December
31, 2020.
Net Sales (Net Satışlar) 148.000 Inventory (Stoklar) 37.500
Cost of goods sold (Satışların Maliyeti) 98.000 Property, plant and equipment (Mülkiyet, Tesis ve Ekipman) 100.000

Operating income (Faaliyet Gelirleri) 17.000 Current liabilities (Kısa Vadeli Yabancı Kaynaklar) 46.750
Profit for the period (Dönem Kârı) 19.000 Total assets (Toplam Varlıklar) 135.000
Net income (Net Gelir/Kâr) 14.500 Shareholders’ equity (Özkaynaklar) 85.000
Account receivable (Alacak Hesabı) 25.000 Long-term liabilities (Uzun Vadeli Yabancı Kaynaklar) 3.250
Cash and cash equivalent (Nakit ve Nakit Benzerleri) 28.000 Prepaid expenses (Önceden Ödenmiş Giderler) 3.000

Cash flow from operating activities (Faaliyetlerden Nakit 10.150 Interest expenses (Faiz Giderleri) 20.000
Akışları)
Debt repayment (Borç Geri Ödemesi) 1.500 Rent expenses (Kira Giderleri) 13.000
Capital expenditure (Sermaye Harcamaları) 14.500 Dividend paid (Ödenen Temettü) 4.500

Required: Calculate cash flow leverage ratios for Whiteday Air Corporation.
Ratios for Cash Flow Analysis
4. Coverage or Solvency Ratios

Solution of Example 4:

•Cash Flow to Long Term Debt = Cash flow from operating = 10.150 = 3,12
Long Term Debts (Liabilities) 3.250

•Cash Dividends Ratio = Cash flow from operations = 10.150 = 2,25

Dividends 4.500

•Cash Return to Shareholders= Cash flow from operating = 10.150_ =0,119

Shareholders equity 85.000