Automated FX Calculation For Large Companies
Built-in automated Constant Currency Calculation for eliminating the FX fluctuations of the financial performance.
Utilizing Constant Currency Calculation
Companies that recognize revenues and costs in different currencies can realize that their performance distorted by the different currency movements over the period.
Analyzing results on a constant currency basis can be important to global companies whose results have been affected by swings in foreign-exchange rates. Such figures show what a company’s financials would have been if the company didn’t experience currency fluctuations.
- IMPORTANT TO KNOW
When reporting constant currency figures, provide transparency by disclosing the methodology and assumptions used in the calculations. This allows users of the financial information to understand how the constant currency figures were derived.
Where Constant Currency Calculation is used
- Allows for more accurate comparisons across different periods or geographic regions, making it easier to identify trends and patterns,
- Allows for better analysis and benchmarking of financial results, especially when evaluating multinational companies,
- Allows management to evaluate its own performance on constant currency basis,
- Helps the company to show investors the power of the business.
Where Constant Currency Calculation is used
- Allows for more accurate comparisons across different periods or geographic regions, making it easier to identify trends and patterns,
- Allows for better analysis and benchmarking of financial results, especially when evaluating multinational companies,
- Allows management to evaluate its own performance on constant currency basis,
- Helps the company to show investors the power of the business.
Be careful with Constant Currency Calculation
- When sales and operating income converted into constant currency using prior year average exchange rate → this results incorrect calculation due to the seasonal numbers.
- Prior year weighted average constant currency rate calculated for revenue but also applied on expenses side.
- When both previous year and current year numbers are converted into constant currency using a projected annual rate determined by the company.
Constant Currency Calculation
- Convert Current Period numbers using the Previous Period’s FX Rate. This shows what financial result would have been if the exchange rate remained unchanged.
- Calculate Previous Period numbers using the Current Period’s FX Rate. This shows what the financial result would have been in the previous period with the current exchange rate.
- Calculate Actual numbers using Budget or Forecast FX Rate. This shows what Actual financial result would have been if the exchange rate turned out as planned.
- Calculate Budget or Forecast numbers using Actual FX Rates. This shows what Budget would have been if the actual exchange rate had been known
In Abylon Rapid Planner we use the first method where the Current Period is converted with Previous Period Rates and we calculate Actual numbers using Budget or Forecast FX Rate.
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