International accounting - Essay Example

This allows the company to avoid currency conversion costs when acquiring specific raw materials and machineries from the international market. The company can also use the same to cater for foreign loan repayments instead of converting locally generated revenues. The company holds a large volume of inventories, which contains mainly finished products ready for the market. This exposes the company to adverse effects in the market whereby, a decrease in currency value consequently leads to a decline in the value of the stocks held.

This includes the loss in value due to obsolescence and possible theft. In addition, the company could be forced to sell the products at a loss to create more space especially if the market is highly dynamic in their tastes and preferences. The company holds substantial amounts of trade and other receivables in its accounts. This exposes the company to the risk of suffering bad debts in cases where the debtors fail to honor their obligations. Although this represents future cash flows for the company, there is so much risk involved that it would advisable for a company to advance the same in the least possible value.

The value also provides a pointer towards the possibility that buyers are making payments slowly, which reduces the amount of funds available to cater for expenses