The "Constant Currency" Crutch, Enough Already

File this under "pet peeve."

Why is it that publicly traded companies consistently insult shareholders' intelligence with their duplicitous treatment of currency exchange rates?

Whenever currency exchange negatively impacts reported revenue and net income figures, company management are all too quick to point to what the results would've been in "constant currency" terms. Yet, when currency exchange rates help reported results, the "constant currency" number is usually hidden away in the footnotes of the press release and not discussed unless an analyst specifically asks for the metric.

The most recent example of this was Oracle's Q3 results...throughout the press release Oracle highlights growth rates in actual terms and also in "constant currency." Most notably, database revenues grew a meager 4% YOY, but grew "8% in constant currency."

I don't mean to single Oracle out for this practice, in fact the vast majority of companies play this game of semantics. It's just that Oracle's use of constant currency crutch was the proverbial straw that broke Woodrow's back.

If, at the end of the day, the value of a company is the sum of its future cash flows discounted back to present value, we investors shouldn't care much at all about "constant currency." Foreign exchange rates have a tangible and permanent impact on the amount of cash a company brings in. Until we have a global unit of currency, Oracle grew database revenues 4%, not 8%.

Note: At the time of this writing I, and/or funds I maintain discretionary control over, maintained a long equity position in ORCL.

Comments

[peter mercovich]

Good point
Foster's(FGL.AX)recently pulled this out of the hat in their half year
It does not quite top their inclusion in current income for 06 of adlr773mm (half the annual profit!) of 'sale of euro brands' and adlr 100mm+ this half year of 'sale of SEA businesses'
This from a company constantly 'fearful' of private equity buyers which keeps their share price at a premium
rgds pcm

[viinnie mirchandani]

On my last trip to India, the hotel took the rate quoted in USD and converted to Indian using a lousy conversion. Amex then got its own cut converting it back in to USD. I complained and Amex agreed with me. But currency baffles most every body. Good for you for calling this...