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I have a company I am researching and want to do DCF analysis on, however this is a Canadian company and the financial statements are in CAD. I tried looking all over the internet for those financial statement that are already converted into USD and found one on macrotrends, however when I converted the financial statements myself from CAD to USD I got different numbers than what's published on macrotrends and I can't figure out why. The numbers are not super different, but different enough (up to around an 8% difference) to warrant looking further into. I don't know which numbers to trust, my own or the ones on macrotrends, since either I did the conversion calculation incorrectly or because sometimes different sources of financial information is slightly off (as I noticed before with other research I've done).

The way I converted the financial statements was by looking at the exchange rate of the CAD to the USD at that moment in time (to account for fluctuation) and multiplying the financial statement numbers by that ratio for that particular year. I went back 5 years in time when doing the conversions.

Am I missing something? Did I do it incorrectly, any constructive advice or information will be appreciated.

Edit: (By the way this stock does trade on the NYSE)

Edit 2: What's even more curious is I actually found another online source that has the financial statements in USD but it's different from both my calculations and macrotrends, again the difference is slight but still present.

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  • 20% difference in exchange rate or final values?
    – Hart CO
    Commented Nov 7, 2020 at 3:07
  • @Hart CO, my mistake it's actually a difference of 8% in final values. Meaning my calculated final value is 8% smaller than the final value on macrotrends.
    – max d
    Commented Nov 7, 2020 at 3:40
  • I don't know what the convention is for the analysis you're doing, but I know that in some situations an average exchange rate is used for the reporting period or spot rate at end of period. 8% seems like a bit much to be accounted for by different exchange rate methodology.
    – Hart CO
    Commented Nov 7, 2020 at 4:53
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    Not an investor at all, but why do you want to change the value to USD? It just introduces noise, except in the case when the company assets are linked to USD (e.g. they have bank accounts in USD). It seems to me that the conversion would only mean that you are evaluating the conversion rates of USD/CAD and not how well the company is doing.
    – SJuan76
    Commented Nov 7, 2020 at 21:25
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    Why do you want to convert the financial statements to USD?
    – TDo
    Commented Oct 2, 2021 at 0:47

1 Answer 1

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Assuming you're objective is valuing the company ("want to do DCF"), the question is why? If it's for an investment, I don't see why you don't work in CAD, i.e., CAD cash flows and CAD discount rate. If you're a US investor, you can always use the spot exchange rate to convert and the forward curve to model or hedge future currency risk.

If you're valuing the company for a cross-border acquisition, you have two options. You can value the company in CAD, again using CAD cash flows and a CAD discount rate, and convert your valuation using the current spot exchange rate. Alternatively, you can model everything in CAD and then use a forward curve and exchange rate forecasts to convert all future cash flows into US dollars and use a US dollar discount rate. I prefer the latter because it allows one to explicitly model the future exchange rate risk.

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  • Very good answer - that last sentence is a really key point that could be expanded for OP's benefit. IMO, what the OP is doing, is handwaving the actual currency risk by assuming simplicity. Investing in a foreign company carries different risks than investing in a local company. Some of those risks are captured in the fx difference.
    – Grade 'Eh' Bacon
    Commented Jul 17 at 12:43

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