Currency Adjustments, Taxes and Debt

This page illustrates how to compute taxes, cash flows and the balance sheet when taxes are computed in different currency than the primary currency of the model.  I suggest carefully seting up an exchange rate and then compute the taxes (with NOL and FX adjustments) in the local currency.  The first step is to compute EBITDA, depreciation expense, interest expense and other items that affect taxes in the local currency. If the debt is in a different currency (e.g. Euro or USD), then you can compute the FX loss (when the exchange rate increases) or the FX gain from the debt balance.  You can compute the percent change in the exchange rate and multiply that percent by the opening balance of the debt (in Euro or USD) to compute the FX adjustment.  With the FX adjustment, you can compute taxes in the local currency.

The process of computing taxes in the local currency and deriving the FX loss is illustrated in the file that you can download below and the associated video.