Modelling FX translations - b/s won't balance
Hi all,
Quick question - I have a company that derives a significant share of its revenues in USD but its base currency is GBP. The company also has quite a lot of USD denominated debt. When I'm modelling this out I run into a couple of issues:
1) If I leave it open, the value of liabilities changes y-o-y and that shows up in CF as changes in financing cash flows. If I add a line in the CF to adjust this currency translation, then my B/S won't balance - the liability side swings around due to FX moves but cash doesn't see it.
2) If I put the FX gain/loss on liabilities (both on interest payments and principal) through P&L, then I get a circular because: gain/loss on FX ->> net income ->> CF ->> debt schedule (cash available to repay debt) ->> amount of debt ->> amount of FX gain/loss. Is this acceptable/ normal?
Many thanks!!!
What FX rate are you using? Did you use the one provided by the company?
I'm using average consensus estimates from Bloomberg... Management doesn't comment on future prices much.
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