WASHINGTON, D.C., Aug. 14—The International Finance Corporation (IFC) has released its third technical paper entitled "The Effects of Hyper-Inflation on Accounting Ratios: Financing Corporate Growth in Industrializing Economies."
Inflation can severely distort the published income statements and balance sheets of companies. The paper examines the influence of high levels of inflation on the financial statements of private companies and develops a simple algorithm, which can be applied to financial statements to achieve a more realistic view of company performance.
The paper applies the methodology to a set of listed Turkish companies for the period 1982-90 and finds that the adjusted results provide a very plausible picture of company performance relative to the inflation-distorted statements. The adjusted results also support the pattern of corporate financing that has been identified in other developing countries, which is that firms tend to rely heavily on external sources of finance and that new shares are an important source of external finance.
The authors of the paper are Geoffrey Whittington, Victoria Saporta and Ajit Singh, all of whom are at the University of Cambridge.
IFC, a member of the World Bank Group, is the largest multilateral source of equity and loan financing for private sector projects in developing countries.
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