Calculating an income statement is a routine exercise for all companies. These vital results provide critical information to management and others by evaluating the economic health of the business. Although a fundamental accounting activity with common rules and practices, profit and loss accounting (P&L) can become challenging under certain circumstances.
For companies operating with different currencies, any P&L exercise requires an extra dimension of complexity. The impact of varying exchange (FX) rates can dramatically affect results from period to period. This complexifies account interpretation and comparisons between entities from different countries: With all results gathered into one consistent reporting currency, underlying performance may become more or less clear. According to HSBC, 70% of CFOs indicate their companies suffered reduced earnings between 2016 and 2018 due to avoidable, unhedged FX risk. Understanding how reported revenue was calculated and how sensitive it is to FX rate assumptions is therefore essential.
Overcoming the FX Uncertainty
To add to the challenge of ever-changing rates of currencies, the ways of making conversions are sometimes different between two business entities from the same company or when comparing accounting and business analytics approaches. Teams may find they are faced with a rigid and formalized process of handling conversion rates, which is important for effective accounting but lacks the flexibility needed to experiment with new conversion practices and test out impact modeling.
Challenges such as these, in which a process that is well-designed for one goal (rigorous end-of-period accounting) but ill-suited for another (rapid experimentation in partnership with business leaders on possible alternative FX rate results) can contribute to the finding that 75% of finance professionals’ time is spent gathering data and administering different processes, rather than engaging in value-added analysis (according to APQC).
Dataiku has developed a use case that aims to ensure that business teams — hand in hand with finance teams — can quickly see the impact of various potential exchange rates on P&L, regardless of whether or not such changes are ultimately implemented in any formal P&L calculation. With this use case, finance teams can quickly iterate analyses of the impact of different FX on revenues and expenses to inform business decisions. By allowing for the underlying datasets to be automatically or manually updated and adjusted, the use case further speeds analysis and reduces rework.
How Can Dataiku's Business Solutions Help You Reach Full Potential?
Business Solutions are Dataiku add-ons accelerating the way to achieve advanced or foundational industry-specific use cases within your organization. They are an operational shortcut to achieve real-world business value. Taking advantage of Dataiku’s core features, they are built to be fully customizable and entirely editable.
They come with:
- A user-friendly interface that enables fine tuning to match specific business requirements
- Ready-to-use dashboards that can be customized
- Documentation and training materials
Dataiku industry specialists develop solutions for every vertical, among which:
- Financial services and insurance: Interactive document intelligence for ESG, modern insurance pricing, AML alerts triage
- Retail & CPG: Distribution spatial footprint, market basket analysis, RFM-enhanced customer lifetime value, product recommendation
- Health and pharmaceuticals: Omnichannel marketing, accelerating drug repurposing
- Manufacturing and energy: Predictive maintenance, outliers detection
As a result, business professionals experience a boost in AI productivity and can rationalize their resources.