Constant Currency

Constant Currency refers to the financial reporting method that eliminates the effects of currency fluctuations on Revenue and expenses. This approach allows companies to assess the true growth or performance of their business by comparing results in a uniform currency over time.

For example, if a company reports its earnings in U.S. dollars but operates in various countries, fluctuations in Exchange Rates can distort the true performance of its operations. By using constant currency, the company adjusts its financial results to reflect what they would have been if Exchange Rates had remained stable.

Consider a case where a U.S.-based company earns 1 million euros in Revenue when the Exchange Rate is 1.1 USD/EUR. If the Exchange Rate changes to 1.2 USD/EUR in the following year, the Revenue would appear to be lower in USD terms, even if the company generated the same amount in euros. By reporting in constant currency, the company would convert the euro Revenue using a fixed Exchange Rate for comparison, thus providing a clearer view of performance.