- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 12. Multinational Operations
- Subject 6. Impact on Financial Statements and Ratios
CFA Practice Question
Which of the following statements about the fixed asset turnover ratio is true in a period of an appreciating local currency and the use of the current rate method?
B. The current rate method results in a higher fixed asset turnover ratio than the temporal method.
C. The fixed asset turnover ratio is the same under either method.
A. The current rate method results in a lower fixed asset turnover ratio than the temporal method.
B. The current rate method results in a higher fixed asset turnover ratio than the temporal method.
C. The fixed asset turnover ratio is the same under either method.
Correct Answer: A
Like the previous question, the key to this answer is the fact that the temporal method remeasures fixed assets at historical exchange rates, while the current rate method uses current exchange rates. Appreciating local currency means that the $US equivalent is higher. As a result, fixed assets are translated at a higher $US equivalent under the current rate method. Since sales are translated and remeasured at the same average exchange rate, this results in a lower turnover ratio.
User Contributed Comments 3
| User | Comment |
|---|---|
| turtle | fixed asset turnover ratio is: sales/fixed assets sales remain the same under both methods. if local currency appreciates, than fixed assets in USD terms at the end of the period are worth more than at the begining -> number is higher under all current method. conclusion: fixed assets turnover ratio is lower under all current method, if local currency appreciates. |
| arudkov | thks turtle |
| Roy1 | >> turtle Nice one! |