The impact of IFRS adoption on companies' financial ratios: evidence from Lithuania

Abstract

According to previous research, a company’s choice to adopt International Financial Reporting Standards (IFRS) may change accounting quality, comparability of financial statements, transparency, cost of capital, foreign investments, financial ratios and many other aspects. The main objective of this study was to evaluate the impact of the adoption of IFRS on financial ratios of Lithuanian state-owned companies. The study investigated financial ratios (profitability, liquidity and leverage) from the financial statements of 15 state-owned companies which adopted IFRS in the last decade. Data were manually collected from the companies’ financial statements on websites, and statistical analysis was performed for the empirical study. The research results showed that IFRS adoption is related to decreased profitability (ROA, ROE, gross margin ratio, net profit margin) ratios, and liquidity ratios (current ratio and quick ratio), but none of these changes was significant. Leverage ratios (financial dependency ratio, debt ratio) varied differently: the financial leverage ratio had a statistically significant decrease, while the debt ratio had a significant increase. Comparing the obtained results with the results of other studies, it can be seen that similar results are obtained only with leverage ratios.