Analysis of changes in entities' financial ratios within the scope of restructuring law no.6111

Financial statements constitute the most important tool in evaluating an entity's financial performance and making the right economic decisions. Therefore they must present the financial position fairly. Although fair presentation is considered an essential principle some financial statements may not represent the actual situation largely due to error and fraud. Unlike error, fraud is intentional and implies deliberate concealment of facts. Furthermore, financial information manipulation implies a altered representation and a misstatement of the financial position. Law No. 6111 was the main cause of significant changes that affected several Turkish entities' financial statements in 2011. In addition to facilitating tax inspection and payment procedures for entities, this law also provided them with the possibility to adjust financial statements to reflect the actual situation which was especially essential for financial statements that might previously be affected by error or fraud. This study aims at analyzing the impact of this law on financial statements by the use of financial ratios. Financial statements and descriptive data pertaining to 631 entities were observed to perform the study. The first two analyses were conducted on two groups of entities, one benefiting and the other one not benefiting from the law while the last analysis was conducted to observe any significant differences between the groups benefiting and not benefiting through the use of eight ratios as a variable. For the first two tests, paired t-test and wilcoxon test were used for dependent samples depending on the sampling size. For the last analysis, two independent samples z- test and mann-whitney u test were used. The analysis result indicates a statistically significant difference on four ratios including bank loans/assets, equity/assets, net income/net sales and net income/equity. While the level of bank loans to assets soared, equity's share on assets dropped along with return on equity and net profit. A decline of equity on total assets accompanied by a loss of profitability presents an unfavourable picture for financial statement users.