A company with foreign revenue reports growth that mixes two things: what the business did, and what the currency did. Constant-currency reporting tries to separate them. It's voluntary and unaudited, and the company defines it. So give it the same scepticism you'd give any number a company gets to define for itself.
How is constant currency growth calculated?
The usual construction restates the current period's local-currency results at the prior period's exchange rates. A less common one restates the prior period at current rates. They give different answers, and the difference grows with the size of the rate move.
Calder Instruments Inc (synthetic) is an American scientific-instruments maker reporting in dollars, with three geographies.
| Segment | FY25 local | FY26 local | FY25 rate | FY26 rate |
|---|---|---|---|---|
| Americas | $1,200.0m | $1,320.0m | 1.0000 | 1.0000 |
| Europe | €640.0m | €700.0m | $1.0850/€ | $1.0400/€ |
| India | ₹24,000.0m | ₹28,500.0m | ₹83.00/$ | ₹87.50/$ |
Reported in dollars, that is $2,183.556627 million in FY25 and $2,373.714286 million in FY26, which is growth of 8.7086%.
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Restate FY26's local figures at FY25's rates and the total is $2,422.873494 million, giving constant-currency growth of 10.9600%. The currency drag is −2.251337 percentage points, and in dollars the currency cost the company $49.159208 million of revenue.
Restate FY25 at FY26 rates instead and the base becomes $2,139.885714 million, giving growth of 10.9272%. The two conventions differ by 0.032805 percentage points. That's small here. It wouldn't be on a currency that had halved.
Now decompose the drag, because a single group number tells you nothing about where the exposure is.
| Segment | Reported growth | Local growth | Drag | Contribution to group drag |
|---|---|---|---|---|
| Americas | 10.0000% | 10.0000% | 0.000000 pp | +0.000000 pp |
| Europe | 4.8387% | 9.3750% | −4.536290 pp | −1.442601 pp |
| India | 12.6429% | 18.7500% | −6.107143 pp | −0.808736 pp |
The contributions sum to −2.251337 percentage points, matching the group figure. That's your check. India had the worse currency move but Europe contributed more drag, because Europe is 31.8013% of FY25 revenue against India's 13.2425%. A segment's contribution is its own drag weighted by its share of the base. A company that talks only about its worst-performing currency is steering you away from the arithmetic.
How do you check a company's constant currency figure?
Four checks turn a management-prepared constant-currency figure into something you can use.
Which convention was used, prior-year rates or current-year rates, and is it the same convention as last year? A switch between them in a year of large moves is worth a question.
Does the constant-currency figure cover the same perimeter as the reported one? Companies frequently present a measure that is simultaneously constant-currency and organic, stripping out acquisitions in the same number, and the combined adjustment is then impossible to decompose.
Do the segment or geography disclosures let you rebuild it? Segment reporting under IFRS 8, Ind AS 108 and ASC 280 gives revenue by reportable segment, and the entity-wide disclosures give revenue by geography. Between them you can usually get the base and the local growth for the two or three currencies that matter, and if your rebuild lands within a few tenths of the company's figure, you can trust it.
And does the currency adjustment appear only where it helps? A group that reports constant-currency revenue growth in a weak-currency year and reverts to reported growth in a strong-currency year has told you which number it manages.