I’m reading that purely IS ratios will be unchanged under the current method, and purely BS ratios will be unchanged under the current method as well. This is understandable because all exchange rates used are the current rate. However, this is not the case for retained earnings, where the historical rate is used. What I don’t understand is…how will ratios affected by equity be the same before and after the translation?
So I am not really sure, but here is how I understand it:
In the current method you will translate all assets and all liabilities at current rates. As always the equation assets = liabilities + equity has to hold and thus equity (on average) will also be translated at the current rate. So as long as you take ratios that have total equity as one component you should be fine. On the other hand, ratios that take just components of equity (e.g. retained earnings, capital stock, …) could change.