Relation on FX on Cash in Cash Flow and Net finance

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CaitSith21
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Joined: 22 Sep 2021, 14:53

Relation on FX on Cash in Cash Flow and Net finance

Post by CaitSith21 »

Dear all

I could not find anyhting about it in my old university books nor my most recent IFRS training.

Part of the operational cash flow is in most publictly listed companies a position called Net Finance costs which is equal to the Interest part of EBIT. So all interest and other finance costs and income. Additionally one position is FX on cash, loans...

Now to my actual question. How can it be that Net finance is equal to the I in EBIT, when the I in EBIT includes FX on cash which in Cash flow is a separat Position outside of operational cash flow on the bottom next to the cash movement? Is in such cases this positon not shown twice resp. shouldnt net finance costs in cash not be I (from EBIT) - FX on Cash?

Thank you in advance and best regards
Marc
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Marek Muc
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Re: Relation on FX on Cash in Cash Flow and Net finance

Post by Marek Muc »

I guess you're talking about the position that is in the top section of the cash flow statement? If so, this is the part that adjusts net/ gross income for a non-cash P&L position, and actual payments should be visible in other lines, eg. interest paid.

You can attach a screenshot of a cash flow statement that could illustrate your question
CaitSith21
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Joined: 22 Sep 2021, 14:53

Re: Relation on FX on Cash in Cash Flow and Net finance

Post by CaitSith21 »

Hi Marek

Take for example publicly listed company their IS position and CF match. 623 in CF = 101 -723 in IS
CF.JPG
IS.JPG
But this 623 include FX effects on Cash, which is again shown in the position Currency translation effects in CF (408)?

Obvioulsy the position in CF (Currency translation effects) should not be 100% equal to the position in IS (FX effect on cash) as this effect is calculated by adding all FX rows in all Cash flow related tables. For example PPE Table you have OB at prior year FX, CB at today FX and movement at average FX. The resulting difference between CB - OB - Movement = FX and all other FX effects in Total are equal tot the FX effect on cash.

But again part of this FX effect is included in the IS position so should the CF position (623 in the example) not be deviate by some amount related to FX on Cash? The reason i ask this question is cause our consolidation tool calculates Net Finance in CF withouth FX on cash and if we want to match the IS position we would need to add FX on Cash to match? But so far the Tool which is distributed by PWC was always correct in regards of IFRS? Nevertheless all compnies i checked showed it with a perfect macht in this regard?

P.s. I don't think that Cash in teh shown example is wrong i guess its just an increase of Net finance and decrease of others or vice versa.

Thank you in advance.

Best regards
Marc
CaitSith21
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Joined: 22 Sep 2021, 14:53

Re: Relation on FX on Cash in Cash Flow and Net finance

Post by CaitSith21 »

Hi Leo

I am not sure. As written above I agree that part of this is not really related to FX on cash, but only a translation effect. I once had to recalcuate this effect for the audit and found out what you have explained with your example.

But what confuses me is your example had no cash FX, but what happens to your example if there is an FX effect on cash?

Counter example: My Bank account had 1mUSD in last December and now has 2mUSD and we consolidate in CHF. So there is an actual FX effect in this position which affects cash? Would your argument in this case sitll be this is not included in the position?

The revaluation would be incloude in Financial expense or income and in Net Fiance costs in CF, but isn't also part of the transaltion positoin next to cash?

Thank you again and Best regards
Marc
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Marek Muc
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Re: Relation on FX on Cash in Cash Flow and Net finance

Post by Marek Muc »

Note that some fx effects on cash are not reflected in P&L, but go through OCI if they arise on translation of a foreign operation. Therefore, they won't be included in the finance costs line that is shown as an adjustment to net income in cash flow statement
CaitSith21
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Joined: 22 Sep 2021, 14:53

Re: Relation on FX on Cash in Cash Flow and Net finance

Post by CaitSith21 »

Hi Marek

agreed for that special case, but If we go back to my initial question on a very high level.

Can it be that Net result in IS is equal to Net result in CF? Which seems to be the norm at least in Switzerland. Or can i understand your answer they will be the same unless you have OCI transactions in foreign currencies?

Thank you in advance.

Best regards
Marc
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Marek Muc
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Re: Relation on FX on Cash in Cash Flow and Net finance

Post by Marek Muc »

well, this is not coming back to your initial question at all :D

OCI does not impact net result

can you attach here an example of P&L and CF where net result is different across those primary financial statements?
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