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Published on 12 Aug 2022 / Market & Competitive Intelligence / Original
Competition is global and it’s very common to have in your peer group a company that uses a different currency to the one you use internally. To standardize your reports and actually make it possible to work with figures across currencies, we need to convert them to a base currency.
Imagine you compete with an international competitor from the Czech Republic and your reporting is in EUR.
Year | 2017 | 2018 | 2019 | 2020 |
---|---|---|---|---|
Revenue [CZK] | 100 | 100 | 100 | 100 |
EUR/CZK | 27,02 | 25,53 | 25,98 | 25,30 |
Revenue [EUR, Historical rate] | 3,70 | 3,92 | 3,85 | 3,95 |
Revenue [EUR, Current 2020 rate] | 3,95 | 3,95 | 3,95 | 3,95 |
One easy way how to manage currencies is to conver all the figures you encounter using your company currency. But as you can see above, that will become problematic in long run because you discard the underlying context.
If you use the “easy” solution, you also make it hard to understand the context of whatever figures you may come across in the future. Consequently, this easy solution will force you to do an inverse conversion in the future and make it unpleasant and unreliable to work with figures when their exchange rates change.
The solution is to save the figures in the original currency. But that opens up the whole problem area of what currency rate(s) you will apply. You have basically two options:
Use current (e.g. today’s) exchange rate
Use historical exchange rates
Current exchange rate is a fixed rate, most probably today’s rate, you use to multiply all figures with. Sometimes you may opt in for more complex approaches, such as a period average.
Historical exchange rates refer to the exchange rates at the time of reporting. For example, you could take P&L values from 2010 and convert them using the exchange rate on 31 December 2010.
The bottom line: In 99% you would want to use historical exchange rates to keep the context intact. Midesk makes handels historical currency exchange for you automatically.
Midesk’s Report Builder is not only able to automatically keep you graphs up to date with it’s rolling periods but also able to automatically convert your graphs to a specific currency.
The same applies to variables. You can specify which currency you want your self-updating figures to convert into.