What is constant currency?

When computing financial performance data for reporting in financial statements, constant currencies are exchange rates that take variations into account and erase them. Companies with international operations frequently add optional, constant currency statistics to the necessary, reported metrics. In essence, it allows them to demonstrate to investors how they performed without regard to changes in foreign exchange rates. Companies that export their goods sometimes observe that factors beyond their control skew their stated revenue and profit. For instance, when the dollar gains strength relative to other currencies, the effect is felt after foreign financial figures are converted back into U.S. dollars. 

Constant currency metrics might be better or worse than reported GAAP statistics, much like other adjusted data. That does not, however, imply that investors should completely ignore the possibility of using these optional actions to present the company in a more favourable light.

Executives from companies and other management teams contend that constant currencies provide a clearer picture of performance at the core. Sadly, that does not always happen. The common belief is that over time, currency impacts tend to balance out. There are a few exceptions, though. For instance, there are some nations, particularly emerging markets, where inflation is rampant and currencies constantly decline.

Constant currencies are exchange rates that account for changes and eliminate them when calculating financial performance data for reporting in financial statements. Companies with global operations commonly supplement the mandatory reported metrics with optional constant currency statistics. In essence, it enables them to show investors how they fared independent of fluctuations in exchange rates. Exporting businesses may discover that uncontrollable circumstances distort their reported revenue and profit. For instance, after international financial numbers are converted back into U.S. dollars, the influence of the dollar's strength relative to other currencies is felt.