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General Main Findings Definitions and Explanations

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General Main Findings Definitions and Explanations Powered By Docstoc
					     INTRODUCTION

1.   General
2.   Main Findings
3.   Definitions and Explanations
4.   Imputation of the Data
1. General
  Analysis of financial statements (balance sheets and profit-and-loss statements) is an
  important tool for examining a company’s situation, including prospects for growth and
  survival, and future growth. Today, this tool is also gaining importance at the levels of
  economic activities and the economy at large. Thus, many countries are drawing up
  statements to examine their financial situation and behaviour.
  The new system of national accounts (SNA93) requires the presentation of financial data of
  manufacturing. SNA93 stresses the importance of compiling balance sheets for the economy
  and its activities and thereby presenting the economy’s assets and liabilities. This addition of
  balance sheets facilitates a more probing analysis of economic development – households’
  behaviour, distribution of national wealth, correspondence among economic sectors, earnings,
  etc. It also allows analysts to additional tests of the consistency and integrity of the accounts,
  thereby making the estimates more accurate.
  The questionnaire used in the Manufacturing Survey has always been based on data from the
  profit-and-loss statements of manufacturing establishments. In contrast to a profit-and-loss
  statement, which expresses the business’s results in a given period of time, the balance sheet
  reflects the condition of the firm on a given date. As part of the development plan for the
  creation of balance sheets for the economy as a whole, and in cognizance of the importance of
  this information in understanding manufacturing data, it was decided to gather balance sheet
  statistics for 1995 and subsequent years.1
  All of the balance sheets that we received were adjusted to changes in the general purchasing
  power of the NIS, on the basis of professional opinions from the Bureau of Certified Public
  Accountants in Israel.
  In the 2002 survey, the balance sheet data of manufacturing are shown for 2001 and 20022 at
  the level of aggregated divisions. These figures complement the data in the profit-and-loss
  statements that are issued as part of the Manufacturing Survey.
  Additionally, tables of the balance sheet components are shown in percentages. In addition to
  the data for 2001 and 2002, they present data for 1999 and 2000. The resulting time series
  makes it possible to examine trends and creates an initial infrastructure for financial analysis.
  The main financial ratios for 1999-2002 have also been calculated, although analysis by
  manufacturing divisions is problematic in the Israeli economy since various establishments,
  even within one division, differ in number of employees, extent of sales, exports, profitability,
  and other parameters. This, of course, affects the financial ratios and makes it more difficult
  to perform a division-level analysis. Nevertheless, the 2002 Survey continues to examine
  various financial ratios at the level of aggregated divisions. We intend to continue monitoring
  the trends that we found in future years, since only a long-term analysis will allow us to state
  that a trend indeed exists.
  The industries were aggregated into seven manufacturing divisions. Establishments were
  divided into two size groups – those with 5 or more employed persons (5+) and those with 50
  or more employed persons (50+). The balance sheet data were examined in view of these two
  size groups.

  1
      See Central Bureau of Statistics, Financial Statements of Manufacturing 1995, Current Statistics 12,
      Jerusalem, 1999.
  2
      For data on the balance sheets of previous years, see: Central Bureau of Statistics, Manufacturing Surveys
      2001, Special Publication 1232, Jerusalem 2001.

                                                    - (XVII) -
   Tables 7a and 7b present data that compare companies traded on the stock exchange with
   establishments with 50 or more employed persons.

2. Main Findings

2.1 Findings for 2002

   Balance Sheet Components:
   Assets: Total assets in 2002 of manufacturing establishments employing 5 or more employed
   persons totaled approximately NIS 220 billion (no change compared with the previous year).
   Establishments with 50 or more employed persons had approximately NIS 178 billion –
   which amounted to approximately 81% of the assets of establishments with 5 or more
   employed persons.
   The assets to employed person ratio was highest in the “Chemicals and Plastics” manufacturing
   division and lowest in the “Textiles, Apparel, and Leather” division (see Table C).
   Current assets: In both size groups of establishments (5+ and 50+) the highest rate of current
   assets was found in the “Electricity and Electronics” divisions (In 1999-2002, the “Electricity
   and Electronics” divisions had the highest rate of current assets, which reached more than
   60%; compared with the average of total manufacturing, which reached only 50%).
   A high rate of current assets was also found in “Metals and Machinery” divisions.
   In the group of establishments employing 5 persons or more, the lowest rate of current assets
   was found in the “Chemicals and Plastics” divisions; whereas in the groups of establishments
   employing 50 or more, low rates of current assets were found in “Building Products” and in
   the “Metals and Machinery” divisions.
   Long-term investments and accounts receivable: In 2002 a rise in the rate of long-term
   investments and accounts receivables occurred in most divisions, in both size groups of
   establishments (5+ and 50+). The highest rate of investments in manufacturing in both size
   groups was found in the “Chemicals and Plastics” and “Paper, Printing and Miscellanneous”
   divisions. The “Paper, Printing and Miscellanneous” divisions also had the highest rise in the
   rate of long-term investments and accounts receivables in 2002, compared with 2001.
   The lowest investment rates in the 5+ group were found in the “Electricity and Electronics”
   and “Food” divisions; and in the 50+ group the lowest rates were found in the “Electricity and
   Electronics” and “Building Products” divisions.
   Fixed assets: In 2002, in the group of establishments with 5 or more employed persons, a
   drop occurred in the rate of fixed assets in all the divisions, and the the average total for the
   entire industry fell from 30% to 27%.
   In the group of establishments with 50 or more employed persons a drop occurred in most
   divisions, except for the “Food” and “Electricity and Electronics” divisons.
   As in previous years, the rate of fixed assets in 2002 was highest in the “Building Products”
   divisions. In the group of establishments with 5 or more employed persons, the rate of fixed
   assets to total balance sheet reached 39%, compared with an average of 27% in the entire
   industry. In the group of establishments with 50 or more employed persons this rate reached
   42%, compared with an average of 27% in the entire industry. The lowest rate of fixed assets
   was found in the “Electricity and Electronics” divisions.



                                              - (XVIII) -
The rate of fixed assets per employed person (see Table C) was highest in “Chemicals and
Plastics” and in “Building Products”; whereas the lowest rate was found in “Paper, Printing,
and Miscellaneous” and “Textiles, Apparel, and Leather”. These findings correspond to those
in the Fixed Gross Capital Stock in Manufacturing survey,1 which also indicates that the
“Building Products” division has a high rate of fixed assets per employed person, mainly in
two industries: “Mining of Sand and Minerals and Quarrying of Stone”, and “Non-Metallic
Mineral Products”.
Short-term liabilities: A high rate of finance from short-term liabilities (which are more
expensive than long-term liabilities) was found in “Electricity and Electronics”. This group is
characterized by high rates of current liabilities, above the average of the total industry; in
addition, in 2002 a rise occurred in the rate of short-term liabilities in this group, compared
with 2001. High rates were also found in “Metals and Machinery”. The lowest rates in the
industry were found in “Chemicals and Plastics”. These findings apply to both size groups of
establishments (5+ and 50+).
Long-term liabilities: The rate of long-term liabilities in both size groups of establishments
was highest in “Paper, Printing, and Miscellaneous”.
The lowest long-term liability rates in manufacturing were found in “Food” as well as in
“Electricity and Electronics”.
Equity, funds and surpluses: The rate of equity, funds and surpluses was highest in the
“Chemicals and Plastics” divisions. This was true in both size groups of establishments. An
additional group of establishments characterized by high rates of equity are the “Food”
divisions; although it should be noted that a drop occurred in the equity rate of 2002
compared with 2001, in both size groups of establishments.
In addition, high equity rates were found in the “Textile, Apparel and Leather” divisions, in
the group employing 5+ people.
The rates of equity were lowest in “Paper, Printing, and Miscellaneous”. In these divisions the
rates of equity, in both size groups of establishments, reached 28%, and it is significantly
lower than the rate of the entire industry.

Ratios:
Current ratio: The highest current ratio in the 5+-size group of establishments was found in
“Electricity and Electronics”. This group is characterized by the highest rates of current assets
and current liabilities in the industry; however, the effect of the current assets factor, which is
significantlyh higher than the division average, causes the highest rate of current ratio to be
found in this group. In the group of establishments with 50 or more employed persons, the
highest current ratio was found in “Chemicals and Plastics” and “Electricity and Electronics”.

In both size groups, the lowest current ratio was found in “Building Products”(the “Building
Products” divisions are characterized by low rate of current assets and high liability rates).
Equity structure ratio: A high rate of finance provided by foreign debt (financial
leveraging) was observed in the divisions of “Paper, Printing, and Miscellaneous” and
“Metals and Machinery” (due to the high rate of long- and short-term liabilities). This applied
to both size groups.

1
    See Central Bureau of Statistics, Survey of Fixed Gross Capital Stock in Manufacturing, 1.1.1992, Special
    Publication No. 1098, Jerusalem, 1999.

                                                  - (XIX) -
   The lowest rates of foreign debt in manufacturing were found in the divisions of “Food” and
   “Chemicals and Plastics”.
   Assets turnover ratio: The assets turnover ratio was highest in “Food” and “Electricity and
   Electronics”, in both size groups.
   The lowest assets turnover ratio was found in the divisions of “Metals and Machinery” and
   “Chemicals and Plastics”.
   In the 50+ size group of establishments, the lowest ratio was found in the “Chemistry and
   Plastic” and the “Paper, Printing and Miscellaneous” divisions.
   Profitability: The highest operating profit to sales ratio was found in “Building Products”, in
   both size groups; whereas the lowest ratio in both size groups was found in the “Textiles,
   Apparel, and Leather” division, although in 2002 there was an improvement, compared with
   2001.
   The highest operating profit to capital ratio was found in “Building Products” (these
   manufacturing divisions are characterized by low equity rates, which raises the operating
   profit to capital ratio).
   The operating profit to equity ratio was lowest in the “Textiles, Apparel, and Leather”
   divisions, despite the improvement that occurred in 2002 compared with 2001.
   The highest operating profit to assets ratio was found in the “Building Products” divisions in
   both size groups. By contrast, the lowest operating profit to assets ratio was found in the 5+
   size-group “Textiles, Apparel, and Leather” divisions, and in the 50+ size-group in the
   “Paper, Printing and Miscellaneous” and “Textile, Apparel and Leather” divisions.

2.2 Comparison with Data on Traded Manufacturing Companies
   Tables 7a and 7b compare data on establishments with 50 or more employed persons in our
   survey, with data on 206 manufacturing companies traded on the Stock Exchange. The data
   on traded companies were taken from the Duke system and processed by the Bank of Israel.
   The survey data differ from those of the Bank of Israel for several reasons:
   1.   This survey has a larger number of establishments and their population is more diverse.
   2.   In this survey, the data were processed from establishment-level balance sheets,
        whereas the Bank of Israel data were processed from consolidated balance
        sheets.
   3.   Changes may have occurred in the aggregation of industries and the attribution
        of establishments to the aggregates.




                                               - (XX) -
3. Definitions and Explanations
3.1 Survey Population
   The survey population includes all establishments that were active in 2002 and employed
   5 persons or more, according to the Manufacturing Survey sample.
   The balance sheets were adjusted for inflation and presented in December 2002 prices.
   In the course of the 2002 survey, data were received from 621 manufacturing
   establishments, of which 492 employed 50 persons or more. Establishments that
   employed 5 or more persons produced 57% of the total output of manufacturing, and
   establishments with 50 or more employed persons generated 66% of total manufacturing
   output in this size group. Regarding the rest of the establishments, which did not provide
   adjusted balance sheets, the data were weighted and imputed (see Chapter 4). Thus, the
   data presented in the tables below include imputed figures for establishments that did not
   provide adjusted balance sheets.

            Table A. Output of establishments for which a statement was received,
                                   by aggregated division
                                                2002

                                  Establishments – total          Establishments with 50 or
            Aggregated                   (N=621)                  more employed persons –
                                                                       total (N=492)
             Division         Percent of the    Distribution    Percent of the   Distribution
                                division’s       of output        division’s      of output
                                  output                            output
               Total                 57                100            66             100
       Food manufacturing            74                    19         86              19
       Textiles, apparel
       and leather
       manufacturing                 49                     4         65               4
       Paper, printing and
       miscellaneous                 47                     6         65               5
       Building
       manufacturing                 49                     6         61               6
       Chemicals and
       plastics
       manufacturing                 91                    32         87              33
       Metals and
       machinery
       manufacturing                 43                    11         60              10
       Electricity and
       electronics
       manufacturing                 39                    22         45              23



                                               - (XXI) -
Table B. Data on Employment, Labour Cost, Income, Profits(1), and Total Balance
Sheet in Establishments with 5 or More Employed Persons, by Aggregated Division
                                                       2002
                                                                                        Profit(2)
    Aggregated         Employed      Employees       Labour cost         Total                          Total
                                                                                       and return
     division           persons      (thousands)       (annual       manufacturing                     balance
                                                                                       on equity
                      (thousands)                    average per       income(2)                      sheet (NIS
                                                                                          (NIS
                                                      employee       (NIS millions)                    millions)
                                                                                        millions)
                                                       in NIS)
       Total               323.6          321.7           136,597        196,546          22,290        220,491
 Food
 manufacturing              52.9            52.3          100,342         29,146            2,828        26,889
 Textiles, apparel
 and leather
 manufacturing              26.6            26.3            79,328         9,208             872         10,333
 Paper, printing
 and
  miscellaneous             34.7            34.4            99,898        13,790            1,380        14,933
 Building
 manufacturing              24.6            24.3          117,632         13,735            2,166        16,645
 Chemicals and
 plastics
 manufacturing              43.6            43.6          142,590         45,459            6,426        58,599
 Metals and
 machinery
 manufacturing              61.2            60.8          116,596         26,972            2,754        35,123
 Electricity and
 electronics
 manufacturing              80.0            80.0         213,395         58,236             5,864         57,969
(1) Data are based on findings of the 2002 Manufacturing Survey, which are presented in this publication.
(2) In December 2002 prices.




                                                   - (XXII) -
    Table C. Data on Income per Employed Person, Profit and Return on Equity
       per Employed Person, Assets per Employed Person, and Fixed Assets
                 per Employed Person(1), by Aggregated Division

                                                      2002
                             Total              Profit(2) and        Total assets         Fixed assets
                          manufacturing       return on equity
Aggregated division        income(2)

                                             Average per employed person in NIS
        Total                    607,373               62,353            617,599               182,579
Food manufacturing               550,964               55,253            493,065               189,368
Textiles, apparel
and leather
manufacturing                    346,165               20,873            336,566               113,973
Paper, printing and
miscellaneous                    397,406               42,391            389,770               102,443
Building
manufacturing                    558,333               78,954            686,969               292,835
Chemicals and
plastics
manufacturing                  1,042,638              103,719          1,181,064               399,953
Metals and
machinery
manufacturing                    440,719               44,665            484,090               120,097
Electricity and
electronics
manufacturing                     727,950              76,756           681,953                139,718
(1) Data are based on findings of the 2002 Manufacturing Survey and the balance sheet data.
(2) In December 2002 prices.




                                                 - (XXIII) -
3.2 Explanations – Structure and Components of the Balance sheet and Financial
    Ratios

a. Structure of the balance sheet
   The most frequent items on the balance sheet are the following:
   On the assets side – current assets (cash and cash equivalents, short-term investments,
   accounts receivable and debitory balances, and inventory), long-term investments and
   accounts receivable, fixed assets, other assets and deferred charges.
   On the liabilities and equity side – short-term liabilities, long-term liabilities, and equity.

   Assets

   Current Assets
   This item includes assets that presumably will become cash within the coming year, cash
   and cash equivalents, short-term investments, accounts receivable, debitory balances, and
   inventory.

   Long-Term Investments and Accounts Receivable
   The long-term investments and accounts receivable item includes investments of more
   than a one-year term – investments in subsidiaries and affiliated companies, long-term
   investments in securities (shares and bonds), excess earmarking of reserves, long-term
   debts, etc.

   Other Assets and Deferred Charges
   This item includes intangible assets such as goodwill, patents, and copyrights, as well as
   deferred charges – miscellaneous expenses spread over several years, such as
   incorporation expenses, expenses of share and bond issues, etc.
   Since this component constitutes a small percentage of the total assets, it was combined
   with long-term investments and accounts receivable.

   Fixed Assets
   This item includes physical assets such as land, buildings, machinery, motor vehicles, and
   equipment. Fixed assets are shown at cost, adjusted for inflation and net of accumulated
   amortization.

   Liabilities and Owner’s Equity

   Current Liabilities
   Current liabilities are those due within one year of the balance sheet date. They include
   short-term loans, suppliers and other accounts payable, notes and checks due, expenses
   payable, income received in advance, customer payments received in advance, current
   maturities of long-term loans, etc.

   Long-Term Liabilities
   Long-term liabilities are those due more than one year after the balance sheet date. They
   include loans from various sources such as banks, subsidiaries and affiliated companies,
   bonds issued by the company, owner’s loans and reserves.

                                                - (XXIV) -
   Shareholders’ Equity
   This item includes the company’s equity (paid-up share equity) and equity reserved for
   various purposes or unforeseen circumstances. The equity item also includes surpluses,
   i.e., net undistributed profit.

b. Financial Ratios
   The analysis of financial ratios included four types of ratios: liquidity, equity structure,
   operating efficiency and ratios measuring earnings.

   Liquidity Ratios
   Liquidity ratios examine the company’s ability to meet its liabilities in the short-term.
   Our analysis included one ratio – the current ratio.

   Equity Structure
   Equity-structure ratios examine the establishments’ sources of finance. We examined
   three ratios: debt to the total assets (financial leverage), the ratio complementary to it –
   owner’s equity to the total assets (financial strength) and debt to owner’s equity.

   Operating Efficiency Ratios
   This ratio examines how effectively the various establishments utilized the various assets
   available to them. One ratio was examined: the assets turnover ratio. The higher the sales
   turnover relative to assets, the greater the efficiency.

   Profit Ratios
   We examined three ratios that measure profits: operating profit to sales examines the
   marginal profit from each sheqel of sales; operating profit to owner’s equity examines
   profit on investments of owner’s equity; and operating profit to assets examines the rate
   of profit obtained by the establishments from all funding sources – i.e., owner’s equity as
   well as foreign debt.




                                              - (XXV) -
3.3 Definitions and Formulas

   Financial Ratios
   Liquidity Ratios
                                  Total current assets
       1)     Current ratio =    -------------------------
                                 Current liabilities
   Equity Structure
                                          Total liabilities
       1)     Debt to total Assets =      ------------------
                                           Total assets

                                                                                  Shareholders’
   equity
       2)     Owner’s equity to total assets (complementary ratio to 1) =             -----------------------
                                                                                            Total assets

                                                Total liabilities
       3)     Debt to owner’s equity =          ------------------
                                                Shareholders’ equity

   Operating Efficiency Ratios

                                Sales
       Assets-turnover ratio = --------
                               Assets

   Profits Ratios
                                              Operating profit
       1)     Operating profit to sales =     --------------------
                                                     Sales

                                                               Operating profit
       2)     Operating profit to owner’s equity =             --------------------
                                                               Shareholders’ equity

                                              Operating profit
       3)     Operating profit to assets =    --------------------
                                                 Total assets




                                                - (XXVI) -
   Sales
   Sales are calculated from a profit-and-loss statement, and include income from industrial
   activity (sales to the domestic market, exports, jobs and repairs and production of fixed
   assets for own use). Other activity is not included.

   Operating Profit
   Operating profit is derived from a profit-and-loss statement of manufacturing
   establishments and is computed as the difference between total income and total expenses
   of the establishment (before financing expenses are subtracted). This figure also includes
   return on equity.

3.4 Aggregation of Manufacturing Divisions
   Economic activities are classified according to the Standard Industrial Classification of
   all Economic Activities 19931. The divisions are aggregated as follows:
   1) Food manufacturing includes: food products, beverages, and tobacco products
      (Divisions14, 15, 16).
   2) Textiles, Apparel, and Leather manufacturing includes: textiles, apparel and
      footwear products, and leather and leather products (Divisions 17, 18, 19).
   3) Paper, Printing, and Manufacturing n.e.c. includes: paper and paper products,
      publishing and printing, jewellery, goldsmiths’ and silversmiths’ articles, and
      manufacturing n.e.c. (Divisions 21, 22, 38, 39).
   4) Building manufacturing include: mining of minerals, quarrying of stone and sand,
      wood and wood products and furniture and non-metallic mineral products (Divisions
      13, 20, 26, 36).
   5) Chemicals and Plastics manufacturing include: chemicals and their products, refined
      petroleum, and plastic and rubber products (Divisions 23, 24, 25).
   6) Metals and Machinery manufacturing include: basic metal, metal products,
      machinery and equipment, and office machinery (Divisions 27, 28, 29, 30).
   7) Electricity and Electronics manufacturing include: electric motors and electric
      distribution apparatus, electronic components, and transport equipment (Divisions
      31, 32, 33, 34, 35).

4. Imputation of the Data
   To impute the data for missing establishments, we divided the missing establishments
   into groups according to size group of employed persons and economic activities.
   Since each establishment provided a sales figure in the course of the Manufacturing
   Survey, we multiplied sales by the sales-to-assets ratio for the group of establishments
   that submitted balance sheets. Thus we computed the value of assets for each size group
   in each aggregated manufacture. After total assets were estimated, we calculated the other
   balance sheet components by applying the proportions found in the establishment-level
   data that we received.



   1
       See Central Bureau of Statistics, Standard Industrial Classification of all Economic Activities, 1993, Second
       Edition, (Technical Publication No. 63), Jerusalem 2003.

                                                     - (XXVII) -

				
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