Question

How does a weakening $US affect the consolidated balance sheet of a company with foreign subsidiaries?

Answer 1

There can be many impacts of weakening US Dollar, let’s discuss them below:

1. If other things remain unchanged, weak US$ increases the balance sheet figures.

If USD vs Euro is .90 and a subsidiary in Europe is doing business of 1000 Euro it will be added as $1,111.11 in consolidated statement but if US$ weakens and new rate is USD vs Euro.85 so new addition to balance sheet would be $1,176.47

2. IF subsidiaries are with higher debts and liabilities this will create pressure on the company overall financials during conversion
3. Company will be benefitted if they accepts payments in currency of countries where subsidiaries are situated, they would be able to make more $ through currency conversion. So every foreign currency inflow will be positive while outflow will be negative for the company
4. If company has manufacturing unit in US and they are dispatching to other countries subsidiaries it’s a big plus but in case of other way around it’s negative for the company. As buying US$ will be cheaper for other currencies and buying other currencies will be expensive for the company so this will help only if things are getting manufactured in USA
5. Weaker US$ will increases the cost of further expansion in other countries, as there would be extra $ outflow to get the same amount of that foreign currency
6. If any raw material has significant contribution in manufacturing cost and that is being imported, this will increase the cost of manufacturing for the company if buying is done in US$ but if they can make it positive by buying in currency of country where subsidiary is located.

Hope this helps!! Let me know if more points are needed.