Financial Ratio Analysis Interpreter

What it does

It converts balance sheet + income statement (and optional cash flow) data into five ratio families (liquidity, activity, leverage, profitability, market), computing at least two ratios per family, then interprets them with named financial frameworks and ties the result to a 0–100 Financial Health Score. In Phase 0 it first tests accounting equality (Assets = Liabilities + Equity, ≤ 0.5% tolerance; unit/currency consistency) and stamps a critical finding if equality breaks. Turnover ratios use average stock/receivables/payables to avoid distortion.

The interpretation layer runs four frameworks in sequence: DuPont decomposition splits ROE into net profit margin × asset turnover × financial leverage (separating leverage-inflated ROE from operational ROE); horizontal & vertical (common-size) analysis reads direction and cost-mix rather than level; the Altman Z/Z″-Score collapses liquidity + leverage + profitability into a single early-warning score; and the Cash Conversion Cycle (CCC = DSO + DIO − DPO) exposes where accrual profit diverges from cash reality. Families cross-check each other: high current ratio + low quick ratio = inventory bloat ("liquidity illusion"); rising net profit but rising CCC = low-quality earnings.

When to use it

When a balance sheet / income statement lands on your desk and you must decide — is this firm solid, do I extend credit, where does the profit come from, can the debt be serviced, what changed year over year. Typical user: a finance/FP&A/accounting professional preparing a loan file, closing budget-vs-actual, doing target due-diligence, or summarizing for the board. The purpose (credit / investment / due-diligence) reweights the score.

Method / frameworks

• DuPont decomposition (3/5-step) — the anatomy of ROE: margin, asset efficiency or leverage.
• Five ratio-family taxonomy — cross-family contradiction detection.
• Horizontal & vertical (common-size) analysis — trend direction + cost-mix shift.
• Altman Z / Z″-Score — bankruptcy early warning; >2.99 safe · 1.81–2.99 grey · <1.81 risk (Z″: 2.6 / 1.1).
• Cash Conversion Cycle (CCC) — quality of liquidity; profit-vs-cash divergence.
• Standards: TMS/TFRS (IFRS-aligned), TMS 29 (inflation), BOBİ FRS; TCMB sector balance sheets for benchmarks. Without a benchmark it marks a "typical range," not an absolute threshold; missing data lowers confidence rather than scoring full marks.