If a company is headquartered in Europe and listed in Europe but most of its cash flows are in the U.S., which ERP would you use or how would you calculate the cost of equity? Separate but similarly, if the company is headquartered in Europe and its cash flows are in Europe but then it is listed in the U.S., which ERP and how to calculate cost of equity?
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You should use the ERP that is aligned with the risks of the business, bot HQ location.
So if business is primarily US => US ERP
Bear in mind revenue / costs misalignments (eg european oharma that have big R&D hubs in Europe and therefore costs in euro, but get most revenue and profits from US in USD)…
Very helpful thank you! What would you do in your second scenario where there are revenue and cost misalignments? Also, if the majority of a company's revenues and costs are U.S. but they are headquartered in Argentina for example and report in a different currency, do you need to align to the currency they report in or the currency of where they derive the cash flows?
Could probably use a weighted average of the two, based off approx % of cash flows from each region?
I suppose so. For cost of debt, if HQ is in U.S. is that different though where you would just go with U.S. cost of debt? It feels misaligned having part of your WACC from another region then your cost of debt U.S. but that is what makes the most sense to me
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