International Financial Statement Analysis Workbook, 3rd Edition

CHAPTER 16 MULTINATIONAL OPERATIONS

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.

SUMMARY OVERVIEW

• The local currency is the national currency of the country where an entity is located. The functional currency is the currency of the ...