The effect of fair value on financial ratios: An example of investment properties

In most of the IAS / IFRS, which are accepted as universal accounting standards today, reporting of assets and liabilities by fair value valuation method is either mandatory or optional. Public companies registered in BIST report investment properties using either fair value method or cost method in their financial statements prepared according to TAS / TFRS and therefore IAS / IFRS. It is thought that the method used in valuation of investment properties will have important effects on the financial statements and financial ratios of companies. Therefore, in this study, it is aimed to provide evidence about the effect of using the fair value method on financial ratios in the valuation of investment properties. The research was carried out by using frequency analysis on 34 companies that have investment properties outside the financial institutions registered in the BIST Equity Market. In this study, according to the situation of using the fair value method in the valuation of investment properties, the effect of the companies within the scope of the research on the activity rates and stock market performance rates was negative; It was concluded that the impact on financial structure ratios and profitability ratios may vary according to the ratio, that is, it may be in a positive or negative direction. In other words, in this study, the use of fair value method in the valuation of investment properties, according to the situation where the cost method is used, the ratio of fixed assets of the companies within the scope of the research to the continuous capital, the ratio of equity turnover rate, the assets turnover rate, the price - earnings ratio and the market value - the book value ratio is negative. It has been found to affect the direction. Moreover, in the study, it was concluded that the use of fair value method affects the financial leverage ratio of companies within the scope of research, the ratio of equity, the ratio of pre-tax profit (loss) to net sales and the ratio of pre-tax profit (loss) to equity. Another result obtained in the study is that the use of the fair value method is close or equal to the positive or negative effect of the companies within the scope of the research on the ratio of net profit (loss) to net sales, the rate of asset profitability and the ratio of net profit (loss) to equity. Key Words: Valuation, Financial Ratios, Investment Properties, Cost Method, Fair Value Method