IAPM: Constant Currency Terms
What is Constant Currency term growth?
Companies with significant operations in other countries often represent their earnings in constant currency terms since floating exchange rates can often mask true performance. In the Indian context, export-oriented companies, especially those in the service sector, can see their performance distorted by a swing in the rupee’s valuation.
Let us look at an example,
Many Indian service sector companies such as Tata Consultancy Services, Infosys, HCL, and Wipro have clients who are predominantly based in foreign countries. With services rendered overseas, their clients will be billed in the local currency, and the weakening of the rupee vis-à-vis the dollar, pound, or the euro will help these companies pull up their growth numbers. Examining their account books in constant currency terms will give a more realistic picture of how the company fared and arrive at a better judgment regarding their operational efficiency.