WARSAW SCHOOL OF ECONOMICS

TURKISH AIRLINES FINANCIAL REPORT

2016

OZAY YILMAZ

INTERNATIONAL

BUSINESS,

075010

Table of contents

1. COMPANY’S PROFILE

2. MAIN COMPETITOR’S

3. FINANCIAL STATEMENT ANALYSIS

3.1. Liquidity Ratios

3.1.1. Current Ratio

3.1.2. Quick ratio

3.1.3. Cash ratio

3.2. Long-term Solvency Ratios

3.2.1. Total Debt Ratio

3.2.2. Times Interest Earned

3.2.3. Cash Coverage

3.3. Asset Management

3.3.1. Inventory Turnover and Days’ Sales in Inventory

3.3.2. Receivables Turnover and Days’ Sales Receivables

3.3.3. Total Asset Turnover10

3.4. Profitability Ratios

3.4.1. Profit Margin

3.4.2. Gross Profit Margin

3.4.3. Return on Assets

3.4.4. Return on Equity

3.5. Market Value Ratios

3.5.1. Earnings per share and Price-Earnings Ratio

3. RECOMMENDATIONS TO INVESTORS : ?

4. SOURCES

5. COMPANY’S PROFILE

Company Name : Turkish Airlines

Creation Date : 1933

Company Locations : 290 destinations in Europe, Asia, Africa, and the

Americas

Main Office /Main Country : Atatürk Airport in Istanbul/Turkey

Sector : Airway

Industry:Aviation

Market Capitalisation : $ 3.4 Billion (2016)

Revenue : US$ 10.522 billion (2016)

Number of Employees: 27,676 (2015)

Important Information :

Europe, Asia, Africa, and the Americas, making it the fourth-largest

carrier in the world by number of destinations, as of 2014.

Turkish Airlines flies to 115 countries, more than any other airline.

Turkish Airlines won the Skytrax awards for Europe's Best Airline,

Southern Europe's Best Airline , and the World's Best Premium

Economy Class Airline Seat for three consecutive years in 2011, 2012

and 2013. Turkish Airlines is the 11th biggest company in Turkey.

2. MAIN COMPETITOR’S

1.) Deutsche Lufthansa AG

The largest airline in Europe.

It operates services to 18 domestic destinations and 197 international destinations in

78 countries across Africa, the Americas, Asia, and Europe

Lufthansa is one of the five founding members of Star Alliance, the world's largest

airline alliance, formed in 1997.

2.) PEGASUS

The second biggest Airlines in Turkey .

Pegasus Airlines bought 49% of the Kyrgyz air company Air Manas. 22 March 2013

the air company had operated its first flight under the brand name Pegasus Asia.

The company offered 34.5% of its shares of stock to the public. The shares began to

be traded at the Borsa Istanbul as BİST: PGSUS on 26 April 2013.

All the companies we are trying to evaluate are from Aviation sector. Although Turkish

airlines is leader of Aviation is Turkish local market , Pegasus is the main competitor for

them. In addition , despite Luftansa is not operating flights in Turkey , is one of the biggest

competitior of Turkish airlines in Europe regarding with ; growth, size , asset , liabilities and

equity.

Lufthnasa Pegasus Turkish Airlines

Revenue €32.056 billion (2015)

4.1 billion TRY

(2013) US$ 10.522 billion (2015)

Total Assets €32.462 billion (2015) 3504540000 TRY billion 25.402.080.000

Number of

Employees 120,262 3,608 27,676

Number of Locations 220 103 292

3. FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is the process of reviewing and analyzing a company's financial

statements to make better economic decisions. These statements include the income

statement, balance sheet, statement of cash flows, and a statement of changes in equity.

Financial statement analysis is a method or process involving specific techniques for

evaluating risks, performance, financial health, and future prospects of an organization.

It is used by a variety of stakeholders, such as credit and equity investors, the government, the

public, and decision-makers within the organization.

.3.1. Liquidity Ratios

A liquidity ratio is an indicator of whether a company's current assets will be sufficient to

meet the company's obligations when they become due.

The liquidity ratios include the current ratio and the acid test or quick ratio. The current ratio

and quick ratio are also referred to as solvency ratios. Working capital is an important

indicator of liquidity or solvency.

3.1.1. Current Ratio

The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its

short-term liabilities with its current assets.

2013 2014 2015 2016

Current Assets 4.535.535.069 6.565.000.000 9.148.000.000 11.079.000.000

Current Liabilities 6.652.755.831 8.506.000.000 11.248.000.000 13.251.000.000

Turkish Airlines Current

Ratio 0,68 0.77

0.81 0.83

Pegasus Current Ratio 0.01 0.01 0.01 0.03

Lufthansa Current Ratio 2,4 0.12 0.27 0.29

Turkish Airlines has (0,83 ) in current assets for every 1 $ current liabilities .If we compare it

with previous years we can obviously see it,s getting better . But unfortunatelly it’s still under

the critical point. Exactly to tell about good words for financial status of Turkish Airlines we

should see current assets over 1$. Because its not an good sign for healthy company.Main

competitior in local market Pegasus has (0,03) current assets for 1 $ liability. Despite its

getting better according to previous years , we can say Pegasus is challenging to survive from

bankrupt.On the other hand , other competitor in Europe Lufthansa has (0,29) current asset for

2015 . We can observe Luftansa has finacial depression same as Pegasus still has better

conditions .

3.1.2. Quick ratio

Quick ratio or liquidity ratio measures the ability of a company to use its near cashor quick assets to

extinguish or retire its current liabilities immediately. Quick assets include those current assets that

presumably can be quickly converted to cash at close to their book values. A company with a quick ratio of

less than 1 cannot currently fully pay back its current liabilities.

2013 2014 2015 2016

Current Assets 4.535.535.069 6.565.000.000 9.148.000.000 11.079.000.000

Inventory 342.224.271 452.228.491 628.000.000 750.000.000

Current Liabilities 6.652.755.831 8.506.000.000 11.248.000.000 13.251.000.000

Turkish Airlines Quick

Ratio 0,44 0,45 0,47 0,55

Pegasus Quick Ratio 0,01 0,16 0,05 0,03

Lufthansa Quick Ratio -1,8 0,06 -0,5 0,03

The quick Ratio of Turkish Airlines is ( 0,55) which is under critical level. But if we compare

with the competitiors and sector averages (0,47) we may say it’s something Turkish airlines

current assets are increasing with inventory percentage.Pegasus and Lufthansa has lower

Quick Ratio precentage compare with Turkish Airlines and it’s not a good signal also.

3.1.3. Cash ratio

The cash ratio is the ratio of a company's total cash and cash equivalents to its current

liabilities. The metric calculates a company's ability to repay its short-term debt; this

information is useful to creditors when deciding how much debt, if any, they would be willing

to extend to the asking party.

Table 3 Cash Ratio

2013 2014 2015 2016

Cash 1.305.570.000 1.436.880.000 2.599.000.000 4.142.000.000

Current Liabilities 6.652.755.831 8.506.000.000 11.248.000.000 13.251.000.000

Turkish Airlines Cash

Ratio 0,01 0,01

0,23 0,31

Pegasus Cash Ratio 0,005 0,03 0,04 0,09

Lufthansa Quick Ratio 0,49 0,027 0,43 0.28

It’s crucially important for a company to have enough liquidity for liabilities. Turkish Airlines

quick ratio is (0,3) which above the sector average ( 0.49 - 0.72 ) but its really a big challenge

to catch 1 value for .companies. Pegasus Airlineshas really small cash and cash equivalents to

its current liabilities. It means they may have trouble during sectorel crisis. Lufthansa has

(0,28) which is below sector average but close to Turkish Airlines is important for

competing as one of the biggest competitor in the market.

3.2. Long-term Solvency Ratios

A key metric used to measure an enterprise’s ability to meet its debt and other obligations.

The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-

term and long-term liabilities. The lower a company's solvency ratio, the greater the

probability that it will default on its debt obligations.

3.2.1. Total Debt Ratio

The debt ratio is defined as the ratio of total – long-term and short-term – debt to total assets,

expressed as a decimal or percentage. It can be interpreted as the proportion of a company's

assets that are financed by debt.

2013 2014 2015 2016

Total Assets 25.402.080.000 31.875.610.000 47.638.000.000 55.716.000.000

Total Equity 6.962.490.000 9.154.400.000 14.090 .000.000 13.903.000.000

Turkish Airlines Total

Debt Ratio 0,72 0,71 0,71 0,75

Pegasus Total Debt Ratio 0,79 0,86 0,82 0,86

Lufthansa Total Debt

Ratio 0,95 0,66 0,64 0,65

The dept ratio of Turkish airlines is 0,75 for every 1 $ .Pegasus is also has close ratio which

is 0,86. Lufthansa is a bit lower than other if we compare with others . The sectoral average is

4,71 which is really high for these companies. It means their situation is not so good and they

may struggle financially soon .

3.2.2. Times Interest Earned

The times interest earned ratio is an indicator of a company's ability to meet the interest

payments on its debt. The times interest earned calculation is a corporation's income before

interest and income tax expense, divided by interest expense.

2013 2014 2015 2016

EBIT 755.000.000 803.000.000 1.019.000.000 762.000.000

Interest 106.674.484 104.048.497 875.000.000 565.000.000

Turkish Airlines TIE 7,07 7,7 1,16 1,34

Pegasus TIE 0,79 9,5 9,9 11,01

Lufthansa TIE 3,12 3,29 6,14 7,5

Turkish Airlines interest bill is 1,34 which is really below the sectoral average , instead they

are growing it’s not good sign fort he company. Pegasus has 11,01 which is higher but still

much lower than average same as like Lufthansa with 7,5 interest bill.

3.2.3. Cash Coverage

The cash coverage ratio is intended to measure the amount of cash available to cover

payments falling due, and is therefore a measure of the solvency of a business.

2013 2014 2015 2016

EBITDA 1.405.000.000 1,514.000.000 4,155.000.000 4.100.000.000

Interest 106.674.484 104.048.497 875.000.000 565.000.000

Turkish Air. Cash

Coverege 13,1 14,5 4,75 7,25

Pegasus Cash Coverege 0,24 0,48 0 0,31

Lufthansa Cash Coverege 0,13 0,1 0,07 0,06

After paying all the expenses Turkish Airlines still has much many for rest and probally will

use it for Re-investent. As you compare with the other’s Pegasus (0,31) , Lufthansa (0,06)

Turkish Airlines has better opportunities than other competitors. Its really good sign for

Turkish Airlines.

3.3. Asset Management

Asset Management Ratios attempt to measure the firm's success in managing its assets to

generate sales. For example, these ratios can provide insight into the success of the firm's

credit policy and inventory management. These ratios are also known as Activity or Turnover

Ratios.

3.3.1. Inventory Turnover and Days’ Sales in Inventory

The calculation of the days' sales in inventory is: the number of days in a year (365 or 360

days) divided by the inventory turnover ratio. For example, if a company had an inventory

turnover ratio of 9, the company's inventory turned over 9 times during the year.

2013 2014 2015 2016

Cost of Good Sold 1.642.531.553 21.145.497.400 25.166.625.600 7.581.848.600

Inventory 342.224.271 452.228.491 628.000.000 750.000.000

Turkish Airlines Inventory Turnover 4,79 46,7 40,07 10,01

Turkish Airlines Days' sales in inventory

76,2 7,62 9,1 36,4

Lufthansa Inventory Turnover 0,24 0,17 0,19 0,06

Lufthansa Days ' sales in Inventory 15,20 21,47 19,21 6.083

Pegasus Inventory Turnover 13,6.9 97.5 64.9 12,60

Pegasus Days ' sales in Inventory 2,66 3,74 5,62 28,96

We may say that Turkish AIrlines sold off, or turned over the entire inventory 10,1 times

during the year and inventory stay as average 36 day before it is sold. Again Turkish Airlines

has good result and giving confidence finacially. Lufthansa has much lower ratio than Turkish

Airlines which is (0,06 ) . It means company hardly standing in 2016.Peagasus has better ratio

compare with Lufthansa . For Pegasus and inventory stay as average 29 day before it is sold

means really good result for company.

3.3.2. Receivables Turnover and Days’ Sales Receivables

Accounts receivable turnover is the number of times per year that a business collects its

average accounts receivable. The ratio is intended to evaluate the ability of a company to

efficiently issue credit to its customers and collect funds from them in a timely manner.

2013 2014 2015 2016

Sales 1.877.678.000 2.415.800.000 2.875.200.000 8.662.000.000

Amounts Receivable 1.148.090.000 1.057.340.000 1.052.000.000 1.479.000.000

Turkish Airlines Receivables

Turnovers 2 2,28 2,73 5,86

Turkish Airlines Days' in Receivables 182,5 160 133,6 62,2

Lufthansa Receivables Turnover 8,4 9,62 10,88 2,76

Lufthansa Days' in Receivables 43,4 37,9 33,5 132,2

PEGASUS Receivables Turnovers 12,64 13,31 12,29 3,45

PegasusDays' in Receivables 28,8 27,4 29,6 105,7

Turkish Airlines collected their outstanding credit accounts and lent the money again 5,62

times during the year. But this ratio will have more sense when it will be convert into days.

Average collection period(APC) for Walmart is 62 days. It can be said that Turkish Airlines

have 62 days’ worth of dales currentlyuncollected. Comapre with the competitors its below

the average. Lufthansa is bigger so its common to have 132 day average colletion period and

also instead Pegasus is not big as Turkish Airlines has good result as 105 days.

3.3.3. Total Asset Turnover

Total Asset turnover ratio is the ratio of the value of a company’s sales or revenues generated

relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator of

the efficiency with which a company is deploying its assets in generating revenue.

2013 2014 2015 2016

Sales 1.877.678.000 2.415.800.000 2.875.200.000 8.662.000.000

Total Asset Turnover 25.402.080.000 31.875.610.000 47.638.000.000 55.716 .000.000

Turkish Airlines Total Asset Turnovers 0,07 0,08 0,06 0,15

Lufthansa Total Asset Turnover 0,08 0,1 0,1 0,03

Pegasus Total Asset Turnover 0,68 0,88 0,85 0,29

The average of sector for Total Asset Turnover is 0,95 which is a high target for all three

company. Turkish Airlines has generating 0,15 dolalr for each 1 dollar assets . Comparing

with the Pegasus its valuable in local market but in international market its still so low and

even lower than one of the biggest competitor Lufthansa (0,29).

3.4. Profitability Ratios

Profitability ratios compare income statement accounts and categories to show a company's

ability to generate profits from its operations. Profitability ratios focus on a company's return

on investment in inventory and other assets. These ratios basically show how well companies

can achieve profits from their operations.

3.4.1. Profit Margin

Profit margin is part of a category of profitability ratios calculated as net income divided by

revenue, or net profits divided by sales.

Sales 1.877.678.000 2.415.800.000 2.875.200.000 8.662.000.000

Net Income 682.710.000 1.819.000.000 2.993.000.000 548.000.000

Turkish Airlines Profit Margin 0,36 0,75 1,04 0,06

Lufthansa Profit Margin 0,13 0,02 0,49 1,4

Pegasus Profit Margin 0,04 0,05 0,3 0,18

The profit margin of Tuekish Airlines is low . It means Turkish airlines sales a lot but

with low profit. Even it seems bad sign for a company for short term as we see from Inventory

days standing is high . We can say its a valuable. Lufthansa is making much more profit than

Turkish Airlines as with sales so , Lufthansa is lokking better while competing with Turkish

Airlines according to the Profit Margin.

3.4.2. Gross Profit Margin

Gross margin is the difference between revenue and cost of goods sold, or COGS, divided by

revenue, expressed as a percentage. Generally, it is calculated as the selling price of an item,

less the cost of goods sold (production or acquisition costs, essentially).

Turkish Airlines has %20 gross profit margin which below the sector average but still

considerable good ratio . The good sign that its growing last for last 1 year. The Annual gross

marging is 78.88 % . Even the Lufthansa has good ratio of Gross Profit Margin twice more

than Turkish Airlines its below sector average. As Pegasus has smaller company than Turkish

Airlines , they make less profit than Turkish Airlines.

3.4.3. Return on Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its assets to generate

earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is

displayed as a percentage. Sometimes this is referred to as "return on investment".

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

45,00%

2013 2014 2015 2016

Turkish Airlines

Pegasus

Lufthanse

According the the ratio of ROA Turkish Airlines is not managing its invesments well . As a

result fof this from 2015 to 2016 their ratio is low. Turkish airlines has profitted 0,15 cent for

1 dollar investment . Its npt a good ratio for a company who compete gloablly. There is

fluctiotions in Pegasus ROA ‘s and its normal for small size companies . Interesting point that

Lufthansa rach the dept in 2014 means company is not profitted .Its not good sign but finally

they recored in 2015 due to their total assets.

3.4.4. Return on Equity

Return on equity (ROE) is the amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing how much profit a

company generates with the money shareholders have invested.

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

2013 2014 2015 2016

Turkish Airlines

Pegasus

Lufthansa

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

2013 2014 2015 2015

Turkish Airlines

Pegasus

Lufthansa

Turkish Airlines has generated 5 cent profit for 1 dolalr Equity.Which is really low even if

tis best in the table . Its not a good sign for investors . Lufthansa has generated 2,1 and

Pegasus has generated 4,1 as most in within three competitors.

3.5. Market Value Ratios

Market value ratios are used to evaluate the current share price of a publicly-held company's

stock. These ratios are employed by current and potential investors to determine whether a

company's shares are over-priced or under-priced.

3.5.1. Earnings per share and Price-Earnings Ratio

Earning Per Share (EPS) and Price Earnings Ratio (P/E Ratio) 3. Earnings Per Share (EPS)

Earnings Per Share (EPS) is equal to net income minus preferred dividends divided by all

shares outstanding. This simply gives you the net profit earned by each share.

Turkish Airlines earnings per share for last year were decreasing after huge growth.

This is a not good sign for company’s investors. PE in statement form 2015 is 2,20 .It

means that Turkish Airlines shares sell for almost 2 times earnings. Because of fact

that PE measures how much investors are not much willing to pay per dollar of

current earnings. Such decrease on PE as Tuekish Airlines means that the

company has may struggle during the year and next year . Even may fall into finance.

0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

2013 2014 2015 2016

Turkish Airlines

TurkishAirlines

-15

-10

-5

0

5

10

15

2013 2014 2015 2016

Turkish Airlines

TurkishAirlines

4. RECOMMENDATIONS TO INVESTORS : SELL

On the basis of a valuation by the comparative method the estimated

capitalization of the company is similar to the current market capitalization

6.62 billion of U.S Dollars. This estimated capitalization was counted by

multiplying PE ratio (median of PE ratios or similar companies) and net

income. It means that company has already reached the boom as growth rate

and started get smaller growth effects.

Additionally mosth of the liqidity ratios are below industry average.As we

observe from the report all the companies struggling with regular growth even

do Lufthansa is huge in the market.

Enterprise Value (market capitalization + market value of interest bearing

debt-cash) company is already reached the boom and started to go down.

According to foreign currency fluctiotions in Turkey sector effected negatively

due to cost of petrolium.Also todays FED increased the interest and declare

that will increase two times more in 2017 , it will effect the global growth and

Turkish Airlines as well.

4. SOURCES

http://www.investing.com/equities/dt-lufthansa-balance-sheet

http://www.accountingtools.com/accounts-receivable-turnover

http://www.investing.com/

https://www.boundless.com/accounting/textbooks/boundless-

accounting-

http://www.accountingtools.com/accounts-receivable-turnover

http://www.investopedia.com/terms/a/assetturnover.asp

http://www.investing.com/equities/pegasus-hava-tasimaciligi-balance-

sheet

http://www.investing.com/equities/dt-lufthansa

http://www.investing.com/equities/dt-lufthansa-income-statement

http://www.quotenet.com/balance-sheet/Turk_Hava_Yollari

http://optamin.com/turkiyenin-en-degerli-sirketleri/

http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?i

nd=11