Page 66 - FINAL CFA II SLIDES JUNE 2019 DAY 5.2

Comparing Subsidiary Results to Translated READING 16: MULTINATIONAL OPERATIONS
Results Under the Current Rate Method

MODULE 16.6: RATIOS

OS 16.f: Analyze how the current rate method and the temporal method affect
financial statements and ratios.

Pure Balance Sheet & Pure Income Statement Ratios

Pure IS and pure BS ratios unaffected by the current rate method (the local currency
trends and relationships are “preserved.” By “pure,” all of the components of the ratio are
from the balance sheet, or all of the components are from the income statement.

• For example, the current ratio is a pure BS ratio because both the numerator and
denominator are from the BS and are translated at the current rate.

• All profit margin measures are pure IS ratios because both the numerator (gross profit,
operating profit, or net profit) and the denominator (revenue) are from the IS and are
translated at the average rate.