Translation, Reporting, and Prices
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Research a U.S.-based multinational corporation (be sure to review its financial statements) which is Northrop-Grumman.
Help with the following:
1. Briefly describe the corporation you researched (one to two (1-2) paragraphs).
2. Discuss the direct impact of current, historical, and average exchange rates in the context of foreign currency translation on the corporation you selected.
3. Determine whether the corporation you researched should use foreign currently translation as a restatement process, a remeasurement process, or both, and explain why.
4. Analyze the financial statements of the company you selected to determine which earnings numbers provide the best metric for an investment analyst. Explain your rationale.
5. Evaluate how the company you researched addresses accounting for foreign inflation. If you agree with its approach, explain why - if you disagree, recommend a better approach.
6. Include three (3) external peer-reviewed sources to support your position.
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The solution discusses translation, reporting and pries for the given question.
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I switched to GM because of the specific issues related to NG. They are just not very exposed.
Discuss the direct impact of current, historical, and average exchange rates in the context of foreign currency translation on the corporation you selected.
I changed this to General Motors. NG did not do much business abroad and what it did do, it did through the DoD. GM makes more sense. Everyone knows what GM does.
GM's market shares outside the US are Latin America (c 20%), Europe (c10%) and Asia (c 5%). The basic strategy has been to reduce exposure abroad by roughly 50%. GM has exposure to all major global currencies. Several currencies have been more salient than others. Specifically, the Canadian dollar, the Euro and the Korean Won, according to the 2013 Annual report, are the most problematic currencies.
In Canada, GM used to maintain a huge market share and a strategic supply chain organization. The CAD amounted to about 1.7 billion yearly cash flow exposure. Yet, GM made it clear that it was not going to hedge the liabilities in CAD, which amounted to 2.1 billion. These were mostly payments to suppliers. Volatility with the CAD is about 3.1% in either direction. Generally, the future spot rates are historically from 1.4-1.8 CAD to 1 USD, especially since 1999.
The recent strength of the CAD has harmed GM's position in that country. The same goes for the Korean Won. GM maintains about $7 billion in CAD on hand. Slowly, GM Canada has lost money and overall profitability. Canadian-origin GM parts and products account today for only about 5% of total sales. Canada's dollar weakened slightly in the middle of the 2000s, and even more near the end, where for the first time in ages, the US dollar was worth more (c 2008). It has remained strong until fairly recently. This was a part of GM's recent bankruptcy. The Canadian investments did not pay off.
The Euro has been volatile. Like everywhere else, GM has struggled in that market as well. The Euro grew strong in two major peaks since 2009: at the end of that year and the beginning of 2010, and again in the middle of 2011.
The Korean Won has seen a steady decline, which has something to do with GM's improving in that area between 2000-2010. Yet, both due to labor problems and a recent strengthening of the Won, Korea has been yet another source of loss for GM. In Japan, the Yen has continually become ...