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Cash Flow Statement

A Foreigner’s Guide to the Turkish Cash Flow Statement
While the Balance Sheet and P&L are mandatory for tax (VUK), the Cash Flow Statement is the hallmark of TFRS (IFRS) reporting. Many smaller Turkish companies do not produce this document internally unless they are audited.
The Golden Rule in Turkey: Profit does not equal Cash. A company can report record profits due to inflation or uncollected sales, yet still go bankrupt because they ran out of cash.
1. The Structure: The Three Buckets
Turkish TFRS Cash Flow Statements follow the standard indirect method, dividing cash movements into three distinct categories:
A. Operating Activities (İşletme Faaliyetleri)

• Starts with Net Profit/Loss.
• Adjustments: Adds back non-cash items like Depreciation (Amortisman) and Tax Provisions.
• Working Capital Changes: The most important part. It shows the cash effect of changes in Receivables, Inventory, and Payables.

B. Investing Activities (Yatırım Faaliyetleri)

• Cash spent on buying machines, buildings, or other companies (CapEx).
• Cash received from selling assets.

C. Financing Activities (Finansman Faaliyetleri)

• Cash received from new bank loans or capital injections.
• Cash paid for loan principal repayments and dividends.

2. "Pill Info" (Key Insights) for Foreigners
a. The "Post-Dated Cheque" (Vadeli Çek) Effect
This is the single most confusing aspect for foreigners.

• The Scenario: In Europe/US, a check is cash. In Turkey, a check is a credit instrument. It has a "due date" (vade).
• The Impact: You might see a huge "Collection from Customers" figure, but in reality, the company holds post-dated cheques that cannot be cashed for 3, 6, or 9 months.
• Note: In TFRS, these are technically "Receivables," but in rough internal cash reports, locals might treat them as "Liquid Assets." Always verify the average maturity (vade) of these cheques.

b. The "Credit Card" Economy
Turkey has a very sophisticated credit card installment system for B2C businesses.

• Blocked Cash: Even if a sale is made via credit card, the cash might be blocked at the bank for 30-40 days to save on POS commission rates. This delay often creates a short-term cash crunch despite high sales.

c. Interest Paid: Where is it?
Under TFRS rules, Turkish companies have a choice.

• Some classify "Interest Paid" under Operating Activities.
• Others classify it under Financing Activities.
• Why it matters: If they put it in "Financing," their "Operating Cash Flow" (OCF) looks artificially higher. Always check the footnotes to see where they hid the interest payments.

3. Tips for Easier Analysis
Tip 1: The "Quality of Earnings" Ratio
Divide Operating Cash Flow by Net Income.
$$Ratio = \frac{\text{Net Cash from Operating Activities}}{\text{Net Income}}$$

• The Target: It should be $> 1$.
• The Red Flag: If the company shows 10 Million TL Net Income but -2 Million TL Operating Cash Flow, they are selling on credit but not collecting. In Turkey's high-inflation environment, uncollected money melts away.

Tip 2: Capex vs. Maintenance
Look at the "Purchase of Tangible Assets" (Maddi Duran Varlık Alımları) under Investing Activities.

• Question: Is this figure high?
• Context: Turkey offers "Investment Incentive Certificates" (Yatırım Teşvik Belgesi) which reduce taxes for CapEx. High CapEx is often a sign of a company using these incentives to grow, which is positive.

Tip 3: The "Rollover" Risk
Look at Financing Activities.

• If you see "Cash Inflow from Loans" and "Cash Outflow for Loan Repayments" are almost equal and huge volumes, the company is constantly "rolling over" debt. They are surviving on the bank's mercy. If the bank stops lending, the wheel stops turning immediately.

4. Mini Dictionary (TR - EN)

Summary: The Ultimate Sanity Check

1. Start with Operating Cash Flow (OCF). Is it positive? If not, stop. A company cannot survive on negative OCF in a high-interest rate country like Turkey.
2. Check Working Capital Changes. Did "Change in Inventory" (Stoklardaki Değişim) suck up all the cash? (Common during inflation spikes).
3. Look at Financing. Is the company borrowing just to pay interest?

Cash Flow Statement