Cambridge based accountancy firm Price Bailey warns of an emerging concern in balance sheet reporting, with the firm finding some businesses are failing to sufficiently highlight currency adjustments in their EBITDA figures in their investor relations presentations. Price Bailey warns this could lead to a company appearing to out-perform, or underperform, based solely on currency movements rather than true operational performance to a retail market of investors.
FY25 reports by Chemring Group, a defence and aerospace company, reported EBITDA growth of +14% in actual terms but only +10% on a constant currency basis, representing a 4-percentage point benefit from foreign exchange movements.
The company has substantial foreign currency exposure, with 40% of revenue denominated in USD, AUD, and NOK. Price Bailey warns that this exposure creates significant translation sensitivity - according to Price Bailey, if GBP weakened by 10% against these currencies, it would increase revenue by £9.9 million and operating profit by approximately £1.1 million.
The trend has also been seen in household names such as Vodafone. The telecommunications giant's adjusted EBITDAAL was €10.9 billion versus €11.0 billion on a guidance basis, with exchange rates creating a €0.1 billion negative impact. A similar trend was also seen with Naked Wines, who’s recent accounts reflected an actual EBITDA loss of £1.4m, when currency adjustments showed a true loss of £9.1m.
Chand Chudasama, Strategic Corporate Finance expert at Price Bailey comments: “The risk with reporting solely on actual EBITDA, without taking account for currency fluctuations, is it can present a distorted view of a company’s underlying performance, particularly for businesses operating across multiple geographies.
“As we have seen, exchange rate movements can significantly impact reported earnings, even when operational fundamentals remain unchanged. By excluding currency-adjusted EBITDA, companies risk misrepresenting organic growth, obscuring margin trends, and undermining comparability across reporting periods.”
Chudasama concludes: “For stakeholders seeking to understand true business momentum, especially in volatile FX environments, currency-adjusted metrics are essential for a more accurate and consistent financial narrative.”
Under FRS 102 Section 30, UK businesses are required to:
- Translate foreign currency monetary items at the closing rate at each reporting date.
- Recognise exchange differences in profit or loss when they arise from settlement or retranslation of monetary items, unless they relate to net investments in foreign operations, in which case they may be recognised in other comprehensive income and accumulated in equity.
- Disclose the amount of exchange differences recognised in both profit or loss and other comprehensive income during the period.
- Clearly state the functional currency and the presentation currency, and explain any differences between them
These requirements are designed to ensure transparency and comparability in financial reporting, particularly in periods of heightened FX volatility - such as the current environment marked by post-Brexit trade adjustments, interest rate differentials, and geopolitical tensions.
However, Price Bailey notes a concerning trend: while large listed companies often address currency effects in shareholder documents, their presentations – which are often relied upon more by retail investors – can be more relaxed in the way CEOs and CFOs report on currency based performance, which can mislead. There is also risk that smaller businesses - especially those unaudited or preparing accounts correctly - may not be complying accurately with the accounting standards sufficiently, and that retail investors may not know to look for these risks.
Price Bailey warns that without proper disclosure and adjustment, businesses may inadvertently mislead stakeholders, lenders, or acquirers - particularly where EBITDA is used as a proxy for valuation or covenant compliance.
