For some reason my brain is scrambled today.
So if we have a company that is overseas and the functionaly currency and local currency are the same both the foreign currency we’d use the current rate method. Ok easy. Now if we are looking at how this would affect the ratios:
The USD at the beginning of the year was 1.35$/ 1 foreign currency, at the end of the year it’s .95$/ 1 foreign currency, 1.1$ is the average i.e. the dollas has appreciated. The qustion is this, compared to using the temporal method:
The Asset Turnover will be higher
The Receivables turnover will be higher
Current Ratio will be higher.
? I thought logically assets woudl be lower using temporal and the assets would be higher using current. Apparently the answer is asset turnover but I have nfc why.作者: Kapie 时间: 2013-4-19 21:25
When your FC is appreciating …
Sales/Assets: Sales (both at average) devided by assets at current (all current) which is lower than aver./historical at which inventory and fixed are converted ( when using temporal) = smaller denominator what we have now
Sales/receivables: sales at average, receivableas at current in both cases…aren’t they?
Current assets/liabilities: All current uses current, if temporal then inventory at average (higher value)= temporal CA is higher while CL is the same (at current rate)= CR must be lower…作者: kseniaru 时间: 2013-4-19 21:27
the answer is asset turnover will be higher
since sales are the same (using average)
but assets are lower under current rate methods (because currency depreciate)
