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    Khalid
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    The document shows revenue figures for different regions in USD and foreign currency for years 2015 and 2016. It also includes the exchange rates for converting between currencies for the start and end of each year. There was a net decrease of $2.3 billion in total revenue due to foreign exchange fluctuations between the two years. When a company does business internationally and reports in multiple currencies, exchange rate changes can impact financial results and this information allows analysts to understand the effects of currency movements.

    Original Description:

    Most Chikennella’s contracts are denominated in $US. Assume instead that Chikennella wrote contracts for its international customers in their respective domestic currencies. For simplicity, assume the contracts were written on January 2, 2015, and revenue was collected and recognized in December 31, 2015. Use the exchange rate information in the table to calculate the effect on Chikennella’s 2015 revenue if contract had been denominated in the various foreign currencies. How would the

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    The document shows revenue figures for different regions in USD and foreign currency for years 2015 and 2016. It also includes the exchange rates for converting between currencies for the start and end of each year. There was a net decrease of $2.3 billion in total revenue due to foreign exchange fluctuations between the two years. When a company does business internationally and reports in multiple currencies, exchange rate changes can impact financial results and this information allows analysts to understand the effects of currency movements.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    81 views1 page

    Case 3

    Uploaded by

    Khalid
    The document shows revenue figures for different regions in USD and foreign currency for years 2015 and 2016. It also includes the exchange rates for converting between currencies for the start and end of each year. There was a net decrease of $2.3 billion in total revenue due to foreign exchange fluctuations between the two years. When a company does business internationally and reports in multiple currencies, exchange rate changes can impact financial results and this information allows analysts to understand the effects of currency movements.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 1

    Amount in

    Amount in
    USD Exchange Rate Foreign
    USD
    Currency

    Year ended December 31, Net change in


    Revenue 01/01/15 12/31/15 01/01/15 12/31/15
    2015 ($ millions) revenue

    Asia, other than China 13,433 0.7543 0.7063 10,132.51 14,346 913
    Europe 12,248 0.8266 0.9203 10,124.20 11,001 (1,247)
    China 12,556 6.2025 6.4952 77,878.59 11,990 (566)
    Middle East 10,846 3.6729 3.6729 39,836.27 10,846 0
    Oceania 2,601 3.5046 4.3044 9,115.46 2,118 (483)
    Canada 1,870 1.1618 1.3847 2,172.57 1,569 (301)
    Africa 1,398 11.5642 15.5159 16,166.75 1,042 (356)
    Latin America and Caribbean 1,875 14.7414 17.2494 27,640.13 1,602 (273)
    Total non-U.S. revenues 56,827 54,514 (2,313)
    United States 39,287 39,287 0
    Total revenues 96,114 93,801 (2,313)

    1. Convert the revenue @ 01/01/15 to foreign currency (revenue * exchange rate @ 01/01/2015)
    2. Convert foreign currency to $US @ 12/31/15 (currency @ 01/01/2015/exchange rate @ 12/31/15)
    3. Foreign exchange fluctuations caused a loss of 2,313 (millions) in net income.
    4. Fluctuations caused the net income to be decreased by 2,313 (millions)
    5. When a company does business in multiple countries, they need to maintain the books in local
    currency as well as USD and they need to disclose the exchange rate impact. Based on the GAAP
    rules, the company is to prepare its financials based on these principals. As per GAAP regulation G,
    public companies are required to disclose non-GAAP financial measure to include a presentation of the
    most directly comparable GAAP financial measures and a reconciliation of non-GAAP financial
    measures to the most directly comparable GAAP financial measures.

    6. One way to treat the foreign exchange rate loss is to frequently hedge their exposures to realized
    losses by using financial derivative securities. As an analyst, these losses should be treated as non
    operating.

    Sources:
    https://www.sec.gov/rules/final/33-8176.htm

    Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X. “Framework for Analysis and Valuation.”
    Financial Statement Analysis & Valuation. 5th edition. Cambridge Business Publishers, 2017.

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