The Effect of Inflation on Firm Profitability: An Application in Retail Sector of Borsa Istanbul

Abstract

The cost of sales increases together with an increase in inflation. The firms that aims to reach a profit target, reflect the cost increases on prices. Increases in prices may be higher than those in costs. Increasing prices lead to inflation. The firms in Turkey experienced a sudden increase in the exchange rates in the period of July-September 2018, and used this depreciation as an excuse for increasing their prices. However, even those firms that were slightly affected by the increase in the exchange rates did so. The aim of the study is to determine the effect of inflation due to the increase in the exchange rates on firm profitability. The study sample consists of ten retail trade firms traded at the Borsa Istanbul equity market. Earnings, cost of sales, gross profit, operating profit and net profit data for Q2-Q3 of 2017 and 2018 are used. A paired sample t-test is conducted to determine the variables' change between 2017 and 2018 periods. The findings indicate that the variables do not change significantly from 2017 to 2018. Variables are also analyzed by using percentage method. The results show that the supermarket firms' profits are higher than the increases in their costs.

Profitability Analysis of Markets Traded on Borsa Istanbul

“…Correlation analysis, t-tests, and financial analysis were conducted on various factors, including revenues, cost of sales, gross profits, operating profits, and net profits. The findings revealed that supermarkets increased their selling prices at a higher rate compared to the cost of sales (Dayı, 2020).…”

“…Furthermore, the study highlighted that the results obtained through the TOPSIS method differed from those obtained through the return on assets ratio analysis (Satır, Kısakürek, & Yaşar, 2020). Dayı (2020) presents the argument that inflation leads to an increase in sales costs. Companies respond to these cost increases by adjusting prices to achieve their target profits.…”

The Effect of Inflation Rate and Foreign Exchange on Company Value at Bank Mandiri Tbk

“…Then, BPS will monitor price developments for these goods and services on a monthly basis in several cities, in traditional and modern markets for several types of goods/services in each city. As a result of inflation that continues to increase and the increase is uncontrollable, it affects all sectors of the economy [7], [8]. Particularly in the capital market, stock prices fluctuated greatly, as did the stock price index of industrial sectors on the Indonesia Stock Exchange.…”