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Constant Currencies

Constant Currencies is a way to messure performance of a company unaffected by currency fluctuations. Consider a very common situation: a British company sells largely abroad and sets its prices (and is paid) in dollars. Suppose sales increased in dollar terms by 10%, but that the dollar fell against the pound and was on average 4% lower during the year than it was the previous year. The result is that the sales growth shown in the accounts will only be about 6%. Constant exchange rates are not always better indicators of performance. Some countries have high inflation and currencies that depreciate persistently . This means that adjusting for the fall in such a currency gives an overoptimistic view of growth. This most often happens when looking at companies with significant emerging markets operations.

 

 

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