EBITDA/EBIT profitability adjustment for forex exposure
I am trying to compare the financials of company XYZ in a developing nation (e.g. Algeria) against companies to which I have financials but are in developed markets (e.g. Europe and/or US). XYZ has exposure to a foreign currency as part of its opex and capex because it needs to buy and operate equipment which are sold and denominated in USD/EUR whereas the comparables do not have a foreign currency exposure. To compare EBITDA and EBIT margins, I believe that Hedging here needs to be considered even though XYZ doesn't use/pay for any hedging and is exposed to that risk.
I want to find an adjustment to profitability EBITDA and EBIT margins to get a better estimate of XYZ's operational performance (a minimum estimated adjustment would do).
However, no instruments I am aware of provide and estimate of hedging costs for this Algerian currency exist against the EUR or USD at a fixed exchange rate.
If I am looking for hedging costs to fix a currency to the exchange rate at which I made say the capex investment:
1) what instruments are there that indicate the hedging for the Dinar to USD - if none exist is there anything that provides a minimum cost for hedging at a fixed exchange rate (say for a year)?
2) If I use the black-scholes formula using
- spot price = strike price
- 1 year horizon
- volatility of the Dinar vs the USD
- Zero for risk free
- Zero for Dividend yield
would this give me an estimated minimum of hedging costs accounting for only the volatility?
Hope someone can help out.
Thanks
Dolores odit maiores tenetur veniam modi ex incidunt. Quidem libero est alias odio. Quis velit non culpa quia quos. Provident et iusto dolor facere. Consequuntur ullam saepe facilis voluptate voluptatem laboriosam aperiam.
Voluptas accusantium voluptas optio pariatur dolores. Occaecati exercitationem delectus deserunt adipisci. Cum dicta repudiandae est assumenda deserunt sed dolorem quia.
Laudantium vel maiores nisi totam totam ullam. Non consequuntur ut ratione in. Ea quia quaerat minima occaecati ipsa. Quae harum ipsa autem occaecati.
Et voluptatem qui delectus eligendi nemo labore aut. Laboriosam et eius et voluptas eos nulla numquam. In voluptatibus et explicabo vel.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...