Omega Inc has reported the revenue figures provided below. 20X3 and 20X4 Revenue growth will be consistent with 20X2 excluding FX impacts. We've been asked a forecast 20X3 and 20X4 revenues. Now the first thing we can see is that reported revenues for 20X2 include an FX loss of 132 million dollars. So what we need to do is to calculate what 20X2 revenue would have been excluding that FX loss, which is the same thing as calculating constant currency revenue. So what we need to do is take the reported figure and add back that FX loss. Giving us constant currency revenue of 2,988. We can then calculate reported revenue growth and constant currency revenue growth below.

Reported revenue growth is reported revenue for 20X2 compared with reported revenue for 20X1 and that's 0.8%. Constant currency revenue growth that's constant exchange rate revenue growth is constant currency revenues for 20X2 compared with reported revenues for 20X1 and that 5.4% Wow, that's quite a different picture of their 20X2 performance isn't it? And we can see that that's because of the huge FX loss in percentage terms. And we can calculate that FX loss by comparing reported revenue growth with constant currency revenue growth and that gives us an FX loss of 4.7% Now the question asks us to forecast 20X3 and 20X4 revenues on a constant currency basis. So we'll take the constant currency revenue growth at 5.4% and use that as our forecast assumption for 20X3 and 20X4.

Then all we need to do is to calculate our forecast revenues in the usual way.

Now, let's have a look at the second part of the question.

Here we told the Omega Inc generates 70% of its revenues in the US and the remainder in Europe. It has no FX hedging arrangements in place. On the 2nd of January 20X3, there is a change in the US dollar to euro exchange rate and we can see that that's being given in row 23, we are asked how this affects the analyst forecasts above. Well, the first thing that we're going to do is to calculate the percentage change in the exchange rate. That's the latest exchange rate compared with the average exchange rate for the previous year.

And that tells us that the US dollar has strengthened by 5.9% compared with the euro. For a US company generating some of its revenues in Euros. This means that those eurodonominated revenues will be worth less when translated into US dollars. So this will give rise to an FX loss. We can quantify this because if we know that 70% of its revenues are generated in the US, then 30% of its revenues are generated in Europe and we can multiply that 30% by the change in the FX rate and then multiply that by - 1 to make sure that we report this as an FX loss and that tells us the FX impact will be -1.8% We can then take this value and use it to adjust our revenue growth forecast for 20X3.

This means that total revenue growth is constant currency revenue growth of 5.4% adjusted for this FX loss of 1.8% And that gives us total revenue growth of 3.6% now in 20X4, there's going to be no effects impact and that's because we're going to assume that 20X3 rate persists through 20X4. Meaning that total revenue growth for 20X4 will be 5.4% We can now rebuild our revenue forecast for 20X3 and 20X4 using our revised revenue growth assumptions.

You'll notice that both of these forecasts are lower than the previous forecast that we calculated and that's because of the effect of the effects rate change at the start of 20X3.