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Balance Sheet

A Foreigner's Guide to Turkish Balance Sheets
The financial reporting system in Turkey is largely aligned with international standards (IFRS), but due to specific Tax Laws (VUK) and a high-inflation environment, there are critical nuances that foreign investors or managers must understand.

1. The Fundamental Distinction: VUK vs. TFRS (Must-Know)
In Turkey, companies typically prepare two different sets of financial statements. The biggest mistake foreigners make is confusing these two.

• VUK Financials (Tax Procedure Law): Prepared strictly for calculating taxes payable to the government. It relies on Historical Cost. It often does not reflect the company's fair market value (Real Estate and Machinery are usually undervalued here).
• TFRS/TMS Financials (Turkish Financial Reporting Standards): Fully compliant with IFRS. It reflects the true economic reality of the company. Publicly traded companies (BIST) and firms of a certain size are required to use this.

Pro Tip:If you are acquiring a Turkish company or entering a partnership, ignore the VUK balance sheet. Always base your valuation and analysis on the TFRS (IFRS) audited statements.

2. The Skeleton: "The Uniform Chart of Accounts"
Turkey uses a Uniform Chart of Accounts (TDHP). This means every company starts their account codes with the same numbers. Knowing these codes allows you to read a balance sheet even if you don't speak Turkish.
The balance sheet consists of 5 main groups with standardized codes:
A. ASSETS (Aktifler)

• Current Assets (Dönen Varlıklar): Assets convertible to cash within 1 year (Cash, Inventory, Receivables).
• Non-Current Assets (Duran Varlıklar): Long-term assets (Buildings, Machinery, Licenses).

B. LIABILITIES & EQUITY (Pasifler)

• Short-Term Liabilities (Kısa Vadeli Yabancı Kaynaklar): Debts due within 1 year.
• Long-Term Liabilities (Uzun Vadeli Yabancı Kaynaklar): Debts due in more than 1 year.
• 5 - Equity (Özkaynaklar): Capital and Retained Earnings.

3. Pill Info" (Key Insights) for Foreigners
Due to the dynamics of the Turkish economy, pay special attention to these specific items:

a. Inflation Accounting (TMS 29)
Due to high inflation, TMS 29 (Hyperinflationary Accounting) has been applied to financial statements starting from 2023.

• Impact: Non-monetary assets (inventory, fixed assets) are restated to reflect current purchasing power.
• Warning: When comparing with the previous year, check if the figures are "inflation-adjusted." Otherwise, a company might look like it grew by 70%, but in real terms (adjusted for inflation), it might have actually shrunk.

b. FX Gains/Losses (Kur Farkı)
Turkish companies often borrow in hard currency (USD/EUR) but generate revenue in Turkish Lira (TL).

• Check: Look at the "Financial Expenses" section. If there is a high "FX Loss" (Kur Farkı Gideri), the company's profits are being eroded by currency devaluation.

c. Severance Pay Liability (Kıdem Tazminatı Karşılığı)
In Turkey, terminating employment is costly. Under "Long-Term Liabilities," you will find "Provision for Employment Termination Benefits." This is a reserve for payments required upon retirement or dismissal. Foreigners often overlook this, but for labor-intensive industrial companies, this is a massive liability on the books.

4. Tips for Easier Bilanço Reading
Focus on these 3 points for a quick health check:

1. Net Working Capital: $$Current Assets - Short Term Liabilities > 0$$
• Interpretation: In a country with volatile interest rates and currency, cash flow is king. Ensure the company has enough liquidity to cover short-term debts.


2. FX Position (Döviz Pozisyonu): Go to the Footnotes (Dipnotlar) and find the "Foreign Currency Position" table.
• The Question: Does the company have more FX assets or FX liabilities?
• The Risk: If there is a "Net Short Position" (Open Position), the company writes a loss every time the TL devalues.


3. Inventory Turnover vs. Inflation:

Does the company carry high stock? In an inflationary environment in Turkey, holding inventory is sometimes a strategy (hedging against future price hikes). However, if sales stall, this turns into a liquidity trap.

5. Mini Dictionary (TR - EN)

Summary: How to Approach?

1. Open the Auditor's Report and check the "Opinion." It should be "Unqualified" (Olumlu).
2. Verify if the numbers are TFRS (good for investment) or VUK (tax only).
3. Check if Inflation Adjustment has been applied.

Balance Sheet