Analysis of the financial statements in Saudi Arabia for the year 2023

Analysis of the financial statements in Saudi Arabia for the year 2023 and in professional ways In the complex business world and the increasing financial challenges,

the analysis of the financial statements comes as one of the basic tools for understanding and estimating the performance of companies and making strategic decisions.

In our accredited financial office in Saudi Arabia, CFOONLINE , we are proud to present our comprehensive guide to analyzing financial statements to help you make informed decisions and achieve financial sustainability.

“Looking for an effective way to measure your company’s performance and improve its strategies? Discover how financial statement analysis can be your secret weapon to success.”

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Analysis of the financial statements in Saudi Arabia

Financial statement analysis: It is the process of examining and understanding the financial data provided by companies in their financial statements, such as:

1. income statements
2. And budgets
3. and cash flow reports.

In Saudi Arabia, financial statement analysis is a vital tool for understanding companies’ performance and assessing their financial health.

Components of financial statements

The financial statements of the companies include the following:

1. Statement of financial position
2. comprehensive income statement
3. List of property rights
4. Statement of Cash Flows
5. The notes to the financial statements

financial statement users

There are 7 categories that use the financial statements, and they are:

1. Existing investors: Will he continue to invest in the company? Or get out of it?
2. Future Investors: Is he investing in the company?
3. Government agencies: a supervisory role, to impose zakat and taxes.
4. Bondholders: Is the bond yield good? Did he show the bond?
5. Banks do you lend or not? Does she raise interest on her loans?
6. Consumers: knowing the quality of products and comparing costs with prices.
7. Other establishments: Mergers, acquisitions and accessions.

Financial analysis ratios of the financial statements

Types of financial ratios:

First: Liquidity ratios: Liquidity ratios are used to measure the company’s ability to meet its short-term obligations on the due date.

Liquidity ratios	The equation	Their purpose
turnover ratios	Current assets / current liabilities	It measures the company’s ability to pay its short-term obligations from its current assets.
Quick ratio	Current assets – (inventory + advance expenses) / current liabilities	A measure of a company’s immediate short-term liquidity.
cash ratio	Cash and cash equivalents / current liabilities	Measuring the ability of cash and cash equivalent assets to cover current liabilities.
Working capital	Current assets – current liabilities	Measuring the company’s ability to finance its daily operations and meet its short-term obligations.

Second: activity rates

These ratios measure the company’s efficiency in managing its assets and moving them of all kinds in the company’s activity to produce revenue and income.

Also called turnover rates.

activity ratios	The equation	Their purpose
debtors turnover rate	Net sales/debtors turnover	Measuring the company’s efficiency in collecting its debts through forward sales operations.
average collection period	365/civilian turnover	This ratio measures the number of days needed to collect civilians.
Inventory turnover	Cost of sales/average inventory	It measures the number of times a company sells inventory.
Average storage period	365/stock turnover	It measures the average number of days required to sell the inventory or use it to produce the goods sold.
The length of the activity cycle	Inventory cycle length + collection cycle length	It measures the period needed in days to sell the inventory and collect its value in cash to start a new activity cycle.
fixed asset turnover rate	Net sales / average fixed assets	It measures the company’s efficiency in using and rotating assets, as it depicts the number of times that assets are rotated during the period covered by sales.
asset turnover rate	Net Sales/Average Assets	It measures the number of times the assets are rotated in the activity and also reflects the company’s efficiency in managing assets.

Third: Profitability ratios

These ratios measure the extent of the company’s ability to achieve profits, and identify the expected return on their money invested in the project.

profitability ratios	The equation	Their purpose
return on equity	net profit/total equity	This rate measures the return resulting from the investment of owners’ money (equity) in the enterprise.
return on assets	net profit/total assets	This rate measures the profit of each riyal invested in the assets of the establishment, whether these assets are in the form of current assets or tangible or intangible non-current assets.
Return on invested money	Net profit + interest/equity + long-term liabilities	How efficient is the company in converting capital into profits?
Gross profit to sales	Gross profit/sales	It measures the ability of the management to make a profit from the main activity of the facility.
Return on sales	net profit/net sales	The return on sales gives an idea of the remaining percentage of sales as distributable net profit.

Fourth: the risk ratio

The risk analysis aims to demonstrate the degree of uncertainty associated with the income stream of providers of long-term debt capital and equity holders.

risk ratio	The equation	Their purpose
business risks	Percentage change in operating profit / percentage change in sales	The degree of uncertainty surrounding the amount of profit a business can make.
financial risks	Percentage change in net profit / Percentage change in profit before interest and tax	It measures the degree of volatility in earnings generated by debt financing as opposed to equity financing.

Fifth: Debt ratio

These ratios measure the extent to which the company relies on debt to finance its assets and investments, and know which sources of financing the company used to finance its assets:

(1. Internal sources from the owner, 2. External sources such as debts and loans).

indebtedness ratio	The equation	Their purpose
The ratio of total debt to total assets	Total Liabilities/Total Assets	It shows the percentage of financing the assets of the company through the liabilities.
The ratio of total assets to equity	Total assets/equity	It measures the degree of financial leverage.
Long-term debt-to-equity ratio	Total long-term debt / equity	This ratio shows the amount of long-term debt used for financing compared to equity.
interest coverage rate	Net profit before zakat, tax and interest + interest / interest	The financial statement analyst needs it to identify the facility’s ability to pay the fixed financing charges.

Sixth: Financial indicators of the stock

It directly contributes to the process of investing in stocks, as it provides information to compare the shares of companies, and then the differentiation process takes place.

The financial indicators of a share depend mainly on the financial values presented in the company’s financial statements and other information about the share.

financial index ratios	The equation	Their purpose
Earnings per share	Earnings available to common stockholders/weighted average number of common shares outstanding	Shows the company’s earnings per share.
Profitability repeater	Market price per share/earnings per share	The number of times a stock’s price multiplies its earnings per share.
Book value per share	Total equity/number of shares	Per share of net assets.

Note: All ratios are extracted from the financial statements, with the exception of some financial indicators for the stock.

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What is the difference between the importance of financial ratios between the food retail sector and the service sector?

We explained this in our article, Analysis of Financial Statements in Saudi Arabia, in the following table:

Nutrition retail sector	Service sector
The importance of this ratio is high in this sector, and the reason for this is that the revenues of these establishments depend heavily on the process of selling inventory.	It has no stock because it provides a service and does not provide a commodity (that is, this percentage is not important in this sector).

The importance of these ratios varies from one sector to another, for example (inventory turnover rate).

How to read the financial statements and how to analyze them

1. Understanding financial statements: We must begin by understanding the main components of financial statements, such as income statements, budgets, and cash flow reports.
2. Financial Item Analysis: It involves analyzing the main financial items in the statements, such as assets, liabilities and equity, to understand the overall financial performance of the company.
3. Analytical Syntax: This involves analyzing vertical and horizontal listings to detect significant trends and changes in the financial statements.

Would you like a more accurate understanding of the numbers and indicators that govern your financial business? Let our CFOONLINE team of experts in the field of financial statement analysis lead you towards success and sustainability.

Analysis of financial statements and its relationship to decision making

• The importance of financial analysis in making decisions: Financial analysis can contribute to estimating the company’s performance and assessing potential financial risks.
• Relevance of analysis to operational and strategic decisions: Analysis can guide the day-to-day operational decisions and strategic plans of a company.

Vertical analysis of the financial statements

1. Working capital analysis: It helps in understanding the company’s balance between fixed assets and current assets and its ability to meet its obligations.
2. Capital Structure Analysis: Shows the distribution of capital between debt and equity and helps estimate the company’s financial stability.
3. Cash flow analysis: Provides a deep understanding of the movement of cash in a company and helps predict future financial challenges.

Horizontal analysis of the financial statements

1. It focuses on comparing the financial numbers of the same company over different periods of time, such as comparing successive financial years.
2. It helps in monitoring changes in financial performance over time and identifying trends of improvement or decline.
3. It allows an analysis of how assets, liabilities, revenues, and expenses have evolved over the years.

What is the difference between horizontal analysis and vertical analysis of financial statements?

A table showing the difference between horizontal analysis and vertical analysis of financial statements:

Properties	Horizontal analysis of the financial statements	Vertical analysis of financial statements
the focus	Compare financial numbers across different time periods.	Analysis of items within the same financial statement in the same period.
the goal	Monitor changes in financial performance over time.	Understand the structure and structure of financial statements and the relationships between items.
Benefit	Analyzing trends and temporal changes in financial numbers.	Analyze the effect of each item on the other items within the list.
Time range	Covers different time periods, such as comparing years.	Focuses on one specific period and the current financial statement.
analyzed items	Includes comparison of assets, liabilities, revenues, and expenses.	Includes analysis of financial ratios and relationships between items.
The main objective	Observe temporal trends and changes over the years.	Understand how individual items affect the overall structure of lists.
Additional benefits	It helps in identifying the fluctuations and time pattern of financial performance.	It helps in analyzing the detailed structure of the lists and identifying trends.
Multiple use	It can be used to predict future trends based on performance.	It helps in discovering problems or opportunities in financial structure.

This table shows the differences between the horizontal analysis and the vertical analysis of the financial statements in a brief and clear manner.

Financial statement analysis program

Tools and resources for financial analysis: Your tools should include the use of financial ratios and financial reports to understand performance and trends.

Forecasting techniques: Financial data analysis can be used to predict future financial performance and make better decisions.

“Your financial decisions are linked to the future of your company. Let us at CFOONLINE help you analyze financial statements with high accuracy to enable you to take informed steps towards growth.”

PDF financial statement analysis and PDF financial statement analysis book

Benefit from analyzing the financial statements through PDF files: Financial statement analysis techniques can be used with PDF files to achieve a better understanding of the financial statements, to download the PDF file: Press here 

Sources of educational books on analyzing financial statements in PDF format: There are many books available in PDF format that explain the analysis of financial statements in detail.

Analysis of the financial statements of Almarai Company: a case study

As an example of analyzing the financial statements, in this article we analyzed the financial statements in Saudi Arabia by talking about Almarai Company.

Evaluation of the financial statements of Almarai Company: By applying financial ratios and analyzing the lists, it is possible to evaluate the company’s performance and identify its strengths and weaknesses.

Analyzing the Company’s Performance and Stability Through Financial Statement Analysis: We can understand how Almarai’s financial performance behaves in its own context.

Here is a table containing a simplified analysis of Almarai Company’s financial statements, with an explanation and financial ratios:

Financial Statements	the explanation	Financial ratios
income list	It shows income and expenses over a period of time.	gross profit/revenue ratio
	The company can recognize profits and losses.	Net profit/revenue ratio
	It helps in estimating profitability and management efficiency.	General and administrative expenses/revenue ratio
Balance sheet	Shows assets, liabilities and equity.	Current debt/asset ratio
	Assists in evaluating financing and financial management.	Equity/assets ratio
Cash flow report	It shows the cash inflows and outflows of the company.	The ratio of cash flows from operating activity / revenues
	Helps monitor cash flows and liquidity.	Ratio of cash flows from financing activity/revenues
Change of ownership rights	Shows changes in equity during the period.	Equity change ratio / financial start

Financial ratios of Abdullah Al Othaim Markets Company

Financial ratios of Abdullah Al Othaim Markets Company
Financial ratios	31/12/18	12/31/2017	percentage change
Liquidity ratios
Working capital	-511,336,109.00	-477,719,520.00	7.04%
trade rate	72.01%	70.92%	1.09%
Fast turnover ratio	17.53%	19.20%	1.67%
activity ratios
debtors turnover rate	244.81	624.29	-379.48
Inventory turnover	7.67	8.37	-0.7
asset turnover rate	1.72	1.8	-0.08
Debt ratios
The ratio of total liabilities to total assets	53.41%	54.35%	0.94%
The ratio of total assets to equity	2.71	2.70	0.01
interest coverage rate	71.16	26.85	44.31
profitability ratio
return on equity	19.17%	32.46%	-13.29%
return on assets	0.07	0.11	-0.04
The ratio of gross profit to sales	20.39%	19.91%	0.48%
Financial indicators of the stock
Earnings per share	3.36%	4.99%	-1.63%
Profitability repeater	20.59	13.87	6.72
Book value per share	18.88	33.94	-15.06

Analysis of the financial ratios of Abdullah Al-Othaim Markets Company for the year 2018

• Fast turnover ratio

This ratio was created due to the inability of the trading ratio to measure the rapid liquidity of the facility, because it includes assets that are slow to convert into cash and even assets that cannot be converted at all.

1. Among them is inventory, which consists of three main parts. Most inventory items, with the exception of finished goods inventory, are not salable and cash cannot be obtained quickly.
2. Also, advance expenses, as these expenses do not bring cash, but are expenses for services that will be provided in the future, so we deduct both inventory and expenses provided from current assets to reach the quick turnover ratio.

How to calculate the quick turnover ratio:

Current assets – (inventory + advance expenses) / current liabilities

Note: Advance expenses are extracted from the notes for advance payments and other receivables.

• Inventory turnover

This ratio is used to find out how many times per year the company’s stock is sold and replaced in the accounting time period.

The higher this ratio, the better for the company because of the speed of converting inventory into cash.

How to calculate inventory turnover:

Cost of sales/average inventory

The average inventory is calculated as follows:

Inventory balance for the previous year + Inventory balance for the current year / 2

• return on assets

The return on assets measures the profit of each riyal invested in assets, whether short or long term, and is used to compare the performance of enterprises for the financial period.

(The reason for this is that net profit as a number does not help in the comparison process due to the difference in the sizes of establishments).

How to calculate rate of return on assets:

net profit/average assets

Note: Depreciation expense is added to net assets to arrive at total assets before calculating the average.

• interest coverage rate

This rate measures the times net profit covers the interest accrued on the debts the company receives.

The reason for the importance of this ratio lies in:

That in the event that the company does not have sufficient profits to cover the interest, the burden of interest may result in converting the company’s profit into a loss if the profits are insufficient,

or increasing the losses in the event that the company achieved losses before covering the interest.

How to calculate interest coverage rate:

Net profit before zakat, tax and interest + interest/interest

Note: The figures are extracted from the company’s income statement, interest under the name of financing costs.

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Dupont model for profitability analysis

Dupont analysis is one of the financial analysis tools to measure the efficiency of the company’s performance and shows the changes that occurred to it, and shows whether these changes are good or bad for the company.

The analysis depends on measuring the profitability of the establishment, and profitability means:

1. The rate of return on equity, ROE
2. Earnings per share EPS

First: The rate of return on equity:

The rate of return on equity is a financial indicator that is calculated from the company’s published financial statements.

The reason for calculating this rate is that it reflects the profitability of the company from the point of view of investors.

The rate is calculated as follows:

• Rate of return on equity:

net profit/average equity

The rate of return on equity can be analyzed bilaterally or tripartitely as follows:

• Binary analysis of the rate of return on equity

Binary analysis is based on two components:

1. Leverage Index
2. Return on assets ROI

Leverage Index:

The financial leverage index ratio directly measures the degree of financial leverage.

If we assume that the indicator is 2, it means that any increase in the return on assets of 1% results in an increase in the net profit for owners of equity by 2%.

The index is calculated by dividing assets into equity = average assets / average equity

return on assets:

It is an indicator that measures the company’s profitability relative to its total assets, and the return on assets gives an idea of how efficiently management is using its assets to achieve profit.

The return is calculated by dividing the company’s net profit by its total assets = net profit / average assets

• Triangular analysis of the rate of return on equity

Through binary analysis, it is possible to conduct a tripartite analysis of the rate of return on equity to reflect three main components:

1. Leverage Index
2. Asset turnover rate
3. return on sales

Asset Turnover:

The asset turnover rate measures the company’s efficiency in using its assets to generate sales or revenues, as this ratio is used to measure the volume of sales that are generated for each riyal of the value of assets.

The rate is calculated as follows:

Sales/average assets

Return on sales:

It’s called a company’s operating profit margin, and it’s a ratio used to evaluate a company’s operational efficiency. Return on sales provides a snapshot of the profit produced per riyal of sales.

An increase in revenue indicates that the company is growing more efficiently.

The rate is calculated as follows: net income / sales

After collecting the previous rates, the three-way analysis of the rate of return on equity =

Average assets / average equity * sales / average assets * net profit / sales

Note: If the financial statements of a company are available for two years, the average of its total assets and the average property rights are taken, and if it is only available for one year, then the total is taken.

Second: earnings per share

Earnings per share is the most important indicator extracted from the financial statements for the benefit of stock buying and selling decisions in the stock market.

This indicator expresses the per share of profits achieved for the elapsed period of activity covered by the financial report.

For the investor, the profit per share represents the achieved return, not the dividend distributed, and is an indicator of the company’s ability to distribute profits for the past year or in the future.

Therefore, profit per share is the most important indicator for the investor to evaluate the company’s performance.

One of the most important uses of earnings per share is that it is considered the main accounting value that is used in evaluating the share price of the company whose shares are traded in the financial market.

Ordinary earnings per share are calculated by dividing the net profit for ordinary shareholders by the weighted average number of ordinary shares during the period, and this is expressed as follows:

Earnings per share = earnings available to common stockholders / weighted average number of common shares outstanding.

Frequently asked questions about financial statement analysis

In our article, we will Analysis of the financial statements in Saudi Arabia for the year 2023, the most frequently asked questions about the analysis of the lists:

• What is the importance of analyzing financial statements?

Analyzing financial statements helps in understanding a company’s performance and making informed decisions based on accurate information.

• What are the most important financial ratios that must be taken into account in the analysis?

Financial ratios include liquidity, turnover, profitability and margin ratios, all of which help in examining different aspects of financial performance.

• How do I read and interpret liquidity ratios?

Liquidity ratios measure a company’s ability to meet its financial obligations in the short term, and can be interpreted by comparing it with industry standards.

• Can financial accounting software be used to analyze lists?

Yes, financial accounting software can be used to facilitate the calculation and analysis of financial ratios and track changes over time.

• What is the importance of analyzing financial statements for making strategic decisions?

Financial analysis processes help guide the company towards making strategic decisions based on a deep understanding of financial performance.

• How can future performance be projected using financial statements?

By analyzing historical data and using forecasting techniques, possible trends in future performance can be estimated.

Conclusion:

Ultimately, the Analysis of the financial statements in Saudi Arabia is the decisive point between success and failure in the business arena.

As a CFOONLINE authorized financial office in Saudi Arabia, we consider it our duty to provide you with the tools and knowledge you need to comprehensively understand the details of your financial business.

Contact us today and discover how financial statement analysis can be your partner in your financial success journey.

The most important sources:

wikipedia