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?

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