Valuation Currency

[D.L]

Buddies,

I am trying to value a company by using DCF method but however, i found out that the company i am trying to value seems to reporting in RMB and the company is traded in HKD. 

Could you all advice on this whether pshould i take the result of the valuation (RMB) and convert it to HKD(Traded currency) using the current exchange rate? Anything if i need to take note?

[specuvestor]

You can't control the exchange rate. It is a known unknown that you are willing to risk

And usually you also can't control in the short term where you consume. So you are basically willing to buy a RMB asset while consuming in SGD. So usually value it at accounting currency and then adjust for your consumption FX. Traded currency is just a function of what Mr Market is willing to offer you. In FX depreciation we see huge price appreciation that is FX adjusted to underlying asset, not so much to traded currency.

For example since 23 June pre-Brexit FTSE 100 has gone up almost 10% in GBP. But if you invested in it your SGD return is negative 1.5%. We call this an FX overlay consideration in asset allocation but it usually does not impact the analysis on the underlying stock selection.

Ditto to those buying gold as an inflation hedge forgetting that the investment books they read are American

[BlueKelah]

Buddies,

I am trying to value a company by using DCF method but however, i found out that the company i am trying to value seems to reporting in RMB and the company is traded in HKD. 

Could you all advice on this whether pshould i take the result of the valuation (RMB) and convert it to HKD(Traded currency) using the current exchange rate? Anything if i need to take note?

doesn't really matter, RMB or HKD it will fluctuate on a minute basis. 

more importantly, take note that you probably should not use only DCF as the sole method of valuation. Deciding which discount rate to use can sometimes be highly subjective, depending on which industry the company operates in.

also you gotta be careful which China company u buy, any red flags?

[Shrivathsa]

Buddies,

I am trying to value a company by using DCF method but however, i found out that the company i am trying to value seems to reporting in RMB and the company is traded in HKD. 

Could you all advice on this whether pshould i take the result of the valuation (RMB) and convert it to HKD(Traded currency) using the current exchange rate? Anything if i need to take note?

doesn't really matter, RMB or HKD it will fluctuate on a minute basis. 

more importantly, take note that you probably should not use only DCF as the sole method of valuation. Deciding which discount rate to use can sometimes be highly subjective, depending on which industry the company operates in.

also you gotta be careful which China company u buy, any red flags?

My two cents input, if you are converting RMB to HKD, in the last two years, the Yuan has depreciated. A more detailed look at Yuan vs HKD is here below.

https://www.dailyfx.com/forex/fundamenta...-Yuan.html

So, if you are converting you will need to convert cash flows over the full business cycle.

Let us assume you are using ten years cash flow and then a residual value.

You will need to look at ten years of exchange rates and set bands, at the highest and lowest and average as optimistic, pessimistic and realistic exchange rates.

https://sg.finance.yahoo.com/echarts?s=C...X;range=5y

The above link will help in a visual eyeballing of the highest , lowest and average

Then, you probably need a risk free rate and a market risk rate.

You can use this link below to look up your risk free rate and market risk rate.

http://people.stern.nyu.edu/adamodar/pod...ssion6.pdf

That is NY Stern Professor Damodar's statistics data.

The rates are quite different for China and Hong Kong.

Hope these help.

[TTTI]

Buddies,

I am trying to value a company by using DCF method but however, i found out that the company i am trying to value seems to reporting in RMB and the company is traded in HKD. 

Could you all advice on this whether pshould i take the result of the valuation (RMB) and convert it to HKD(Traded currency) using the current exchange rate? Anything if i need to take note?

doesn't really matter, RMB or HKD it will fluctuate on a minute basis. 

more importantly, take note that you probably should not use only DCF as the sole method of valuation. Deciding which discount rate to use can sometimes be highly subjective, depending on which industry the company operates in.

also you gotta be careful which China company u buy, any red flags?

My two cents input, if you are converting RMB to HKD, in the last two years, the Yuan has depreciated. A more detailed look at Yuan vs HKD is here below.

https://www.dailyfx.com/forex/fundamenta...-Yuan.html

So, if you are converting you will need to convert cash flows over the full business cycle.

Let us assume you are using ten years cash flow and then a residual value.

You will need to look at ten years of exchange rates and set bands, at the highest and lowest and average as optimistic, pessimistic and realistic exchange rates.

https://sg.finance.yahoo.com/echarts?s=C...X;range=5y

The above link will help in a visual eyeballing of the highest , lowest and average

Then, you probably need a risk free rate and a market risk rate.

You can use this link below to look up your risk free rate and market risk rate.

http://people.stern.nyu.edu/adamodar/pod...ssion6.pdf

That is NY Stern Professor Damodar's statistics data.

The rates are quite different for China and Hong Kong.

Hope these help.

Good links and thanks for sharing Shrivathsa!

Personally I'd value using the current exchange rates, risk free rates etc and that's about it, I wouldn't try to get it that exact by converting the historical "real values" nett of Fx fluctuations.
The reason is that the past currency rates are not indicative of how they'd behave going forward, and doing all that work doesn't yield more accuracy for future CFs and rates. 
Afterall, with DCF, we are mainly concerned about the future CF.
One can just input a certain additional discount to the DCF to account for Fx risks in your modelling instead.
For sure though, the FCF that's input into your modelling should be derived from a long period of time, especially for cyclical businesses.