A Consolidated View Across Group Companies: What a Financial and Fiscal Check Up Changes in Multi-Entity Structures

A significant share of companies in Türkiye that have grown beyond a certain scale operate not as a single legal entity but within a structure made up of several connected companies. Separating production from trading, running export operations through a separate entity, holding real estate assets in a dedicated company, and splitting business lines that have different ownership ratios are among the common reasons for this arrangement. Each company added over time brings its own books, its own filings and its own financial statements.

The natural consequence is this: while the accounting layer runs at company level, the decision layer usually runs at group level. An investment decision may appear on one company's balance sheet while its funding is met from another company's cash flow. A receivable risk arises in one company, yet its outcome affects the banking relationships of the entire group. What is discussed at the management table is the group as a whole, while the statements placed in front of that table belong to individual companies.

This divergence becomes more pronounced as the number of companies increases. In a structure with three companies, management may be able to combine the statements mentally and reach a conclusion. Once the number rises to eight or ten, and a regular commercial and financial flow develops between the entities, performing that consolidation mentally becomes difficult. When the distance widens between the information a decision rests on and the area that decision affects, even a well-intentioned and experienced management team may be working from an incomplete picture.

This is where the Financial and Fiscal Check Up comes in. In a single-entity structure the scope of the work is largely self-evident; in a multi-entity structure the scope itself becomes a decision. When it is not clarified at the outset which companies will be included, whether the assessment will be made on a company basis or through a combined view, and how intercompany transactions will be treated, the resulting output may be incomplete or misleading. This article addresses how scope is defined in multi-entity structures, what is examined when intercompany flows are separated, and how the difference between the single-entity view and the group view is read.

Defining the Scope in Multi-Entity Structures

The scope of the work begins with the question of which companies will be included in the assessment. At first glance this may appear straightforward; in practice, where the boundary of the group is drawn is often open to discussion. Including wholly owned companies rarely raises debate. By contrast, companies in which only a minority stake is held, joint ventures, entities established in the names of family members but now part of the group's commercial flow, and dormant companies that still carry assets or liabilities on their balance sheets all require separate consideration.

Looking only at the legal ownership ratio when defining scope may often be insufficient. Where the commercial flow actually runs is also taken into account. A company that carries part of the group's core activity, sells a material volume of goods or services to group companies, or regularly receives funding from them may be affecting the group's financial picture even where the ownership share is low. Leaving such companies outside may weaken the completeness of the view.

The second dimension of scope is the level at which the assessment will be made. Three approaches may be considered. The first is assessing each company separately, which shows whether individual entities can stand on their own. The second is building a combined view by eliminating intercompany transactions, which sets out the group's actual position towards the outside world. The third is preparing both views together. In practice the third approach usually produces the most explanatory result, because the difference between the two statements is itself a source of information.

The third dimension of scope is the choice of period. Even where group companies share the same fiscal year, their closing discipline may differ. One company may run inventory counts regularly while another leaves them to year end; one may book provisions while another does not. A consolidation performed without addressing these differences may bring the statements to the same date without bringing them to the same measure. How consistent accounting systems are across companies is one of the matters that should be visible at the start of the work, since differences here can directly affect the reliability of every comparison that follows.

Another frequently encountered matter is companies whose activity has effectively ceased but which have not been closed. Their balance sheets may carry receivables from earlier periods, payables to shareholders, unused assets or carried-forward tax amounts. Often overlooked in group assessments, these items can lead to being caught unprepared when they surface during a partnership or financing discussion. Including them in scope, regardless of the size of the amounts, keeps the picture complete.

In structures that include companies established abroad, the scope decision calls for a further degree of care. Different accounting practices may apply in different jurisdictions, year-end currency translation may materially affect the outcome, and access to certain information may depend on local regulation. Whether these companies will be included, and if so at which rate and as at which date they will be combined, is settled at the beginning of the work.

Who makes the scope decision also matters. This is not merely a technical preference; it determines what the work will convey and to whom. An assessment prepared for a banking relationship may differ in scope from one prepared ahead of a partnership discussion. Scope is therefore defined together with the purpose of the work and with management's knowledge.

Setting the scope down in writing can also be useful. When it is recorded briefly which companies were included, which were left out and why, which period was taken as the basis and which assumptions were applied, repeating the same exercise in later periods becomes easier. The same note also provides a frame explaining the boundaries of the picture should the output need to be shared with third parties.

What a Financial and Fiscal Check Up Examines When Separating Intercompany Transactions

In multi-entity structures, the element that most affects the statements is intercompany transactions. Companies sell goods to one another, issue service invoices, lend funds, pay rent and allocate shared costs. Each of these appears in the relevant company's own statements as genuine revenue, cost, receivable or payable. Seen from the perspective of the group as a whole, however, a portion of these amounts is directed inward rather than outward.

The presence of intercompany transactions is not in itself a problem; it is usually a natural consequence of the structure. The difficulty arises when they are assessed without being separated from transactions with the outside world. Without that separation, the resulting picture shows not how much business the group actually does, but how many times the group has created a record within itself.

The separation exercise establishes which amounts relate to external parties and which to the group's own entities. Where this distinction is not made, revenue may appear higher than it is, receivable and payable balances may be inflated, and profitability ratios may not reflect actual performance. Particularly in structures where the same goods pass through more than one group company, total revenue can rise markedly above the level of external sales.

The headings examined during separation can generally be listed as follows:

→ The share of intercompany sales of goods and services within total revenue, and the pricing logic on which those sales are made

→ The balances and maturities of intercompany current accounts, and how long those balances have remained unsettled

→ Intercompany funding flows, showing which company acts as the provider of funds and which as the user

→ The basis on which shared costs — management, rent, personnel, advisory — are allocated between companies

→ The total amount of guarantees, sureties and mortgages given in favour of group companies, and on whose balance sheet they appear

Among these, the last is usually the most easily overlooked. A company's own borrowings may look limited while the obligations it carries through sureties given for other group companies are considerably higher. Even where such an obligation does not appear directly as a liability, it forms part of the assessment made by lending institutions. Likewise, intercompany current accounts that remain unsettled over a long period may indicate that one company is effectively financing another; while this need not be a problem in itself, it shows where funds are genuinely generated and where they are used.

Ageing intercompany balances is also part of the exercise. When it is examined when balances between group companies arose and how long they have remained without movement, some amounts may prove to have become a permanent transfer of funds. Identifying this matters both for reading the statements correctly and for reviewing the structure from a tax and legal perspective.

Pricing forms a separate heading. The margin at which intercompany sales are made determines in which entity profit accumulates. In structures where most of the profit collects in a single company, it is not unusual for the others to appear weak when assessed on their own. When reading such a picture, it is necessary to distinguish whether the outcome stems from a difference in performance or from an intercompany pricing preference. The same distinction can be decisive in assessments made within the scope of the financial check up model.

The allocation of shared costs calls for similar consideration. The cost of management, finance, human resources and information technology functions run at group centre often arises in a single company and is charged on to the others as a service fee. The basis of that charge revenue share, headcount, intensity of use or a fixed amount can materially change how profitability appears across the entities. Whether the allocation basis has been applied consistently over the years also affects whether comparisons between periods remain meaningful.

A by-product of the separation exercise is that inconsistencies in the accounting layer become visible. Cases where two companies have recorded the same transaction at different amounts or in different periods emerge during consolidation as differences that do not clear. The size of those differences also says something about the group's reporting discipline.

The Difference Between the Single-Entity View and the Group View

When the two outputs produced at the end of the work the company-level view and the combined view are evaluated together, information emerges that neither provides on its own. Reading this difference may be considered the most critical stage of assessment in multi-entity structures.

The first reading concerns indebtedness. In a group where leverage ratios appear reasonable at company level, total financial debt relative to equity may prove considerably higher in the combined view. The reverse is also possible: in a structure where a single company appears heavily loaded, the position may look more balanced once the whole group is taken into account. Lending institutions often look at the group as a whole; when management looks through the same frame, the likelihood of encountering unexpected outcomes in discussions may be reduced.

The second reading concerns cash generation. Which company within the group generates cash and which consumes it is usually visible in company-level statements; whether that flow is sustainable, however, becomes clear only in the complete picture. In a structure where the cash-generating company transfers all it produces to the others, net cash generation at group level may remain limited. This is a factor to consider when assessing whether the pace of growth is aligned with financing capacity. Addressing working capital management at group level may therefore produce different conclusions from addressing it at company level.

The continuity of cash flow is assessed alongside its direction. In structures where intercompany fund transfers cluster in particular periods, a snapshot taken on a single date may be misleading. Two views taken immediately before and immediately after a transfer can differ markedly. For this reason the cash position is preferably examined not in a single cross-section but together with its movement through the period.

The third reading concerns where risk concentrates. In structures where most of the intercompany commercial flow passes through a single entity, a disruption in that entity may spread across the group. Similarly, where the security structure is concentrated on the assets of one company, the availability of those assets may be constrained. Such concentrations may not be visible in individual statements, yet they become apparent when assessed through a combined view.

The fourth reading concerns where profit is formed. A company showing high profit in its own statements may deliver a much more limited result once the contribution of intercompany sales is eliminated. Equally, a production company that appears to operate at low profitability may be the principal source of the group's external sales. Reading which activity and which customer group profit comes from, measured on external sales, makes it possible to see the genuine contribution of each business line. This reading can form the basis for decisions on where to invest and which line to reconsider.

Reading the difference also has a managerial dimension. The size of the gap between the two views shows the extent to which the group functions as a single economic whole. If the gap is limited, the companies largely stand on their own. If it is pronounced, interdependence is high and the structure may need to be reconsidered. In some groups this assessment brings forward matters such as reducing the number of entities, regrouping business lines or placing funding flows on a different footing. The starting point of restructuring work is often a comparison of this kind.

Finally, it is determined whose agenda the resulting view will enter. The recipient of an assessment prepared at group scale is usually not the general manager of a single company but the governing body responsible for the group as a whole. When it is defined from the outset which decisions the findings will feed, how often they will be refreshed and to which owners they will be assigned, the work can move beyond a report and become a regular monitoring instrument. In this respect the assessment can be positioned as part of planning and management processes; when addressed within the scope of board advisory, it can directly affect the quality of information available to the decision-making body.

Once this order is established, the complexity of a multi-entity structure does not disappear of its own accord; but it becomes possible for management to decide while seeing that complexity. Refreshing the group view at regular intervals and with the same set of definitions also makes it possible to track change between periods. Where a one-off exercise provides information limited to the present position, a repeated routine can also show the direction of travel.

At NT Finans Partners, we support companies in defining the scope of financial and fiscal assessments in multi-entity structures, separating intercompany transactions and bringing the combined view onto the management agenda. To establish a working routine suited to the current structure of your group, you can contact us.