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International Financial Statement Analysis, 3rd Edition by Anthony T. Cope, Michael A. Broihahn, Wendy L. Pirie, Elaine Henry, Thomas R. Robinson

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CHAPTER 16

MULTINATIONAL OPERATIONS

Timothy S. Doupnik, Phd

Elaine Henry, CFA

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

  • distinguish among presentation (reporting) currency, functional currency, and local currency;
  • describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses;
  • analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company;
  • compare the current rate method and the temporal method, evaluate how each affects the parent company's balance sheet and income statement, and determine which method is appropriate in various scenarios;
  • calculate the translation effects and evaluate the translation of a subsidiary's balance sheet and income statement into the parent company's presentation currency;
  • analyze how the current rate method and the temporal method affect financial statements and ratios;
  • analyze how alternative translation methods for subsidiaries operating in hyperinflationary economies affect financial statements and ratios;
  • describe how multinational operations affect a company's effective tax rate;
  • explain how changes in the components of sales affect earnings sustainability;
  • analyze how currency fluctuations potentially affect financial results, given a company's countries of operation.

1. INTRODUCTION

According to the World Trade Organization, merchandise exports worldwide were nearly US$15 trillion ...

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