Currency Conversion Rate

Category

Ratios

Units

Exchange rate

Reference

ASC 830 (Foreign Currency Matters)

Source

Calculated by GeminIQ from figures reported in SEC filings

The currency conversion rate is the exchange rate used to restate a company's financial figures from the currency they were reported in into another currency, usually US dollars, so that companies reporting in different currencies can be compared. It expresses how many units of the target currency one unit of the reporting currency is worth.

It matters mainly for companies whose statements are not presented in dollars, such as foreign private issuers filing annual reports on Form 20-F. For a US company that reports in dollars, the conversion rate to dollars is simply 1.0.

Within a company's own statements, foreign-currency translation is governed by ASC 830. When a subsidiary keeps its books in a different functional currency, its assets and liabilities are translated into the parent's reporting currency at the exchange rate on the balance-sheet date, while income and expense items are translated at the rates on the dates they occurred, often approximated by an average rate for the period. The resulting translation difference is recorded in other comprehensive income rather than net income. Companies that disclose the rates they used can tag them with the ForeignCurrencyExchangeRateTranslation1 element in XBRL.

The same logic applies when a data provider converts a whole set of statements for comparison. Balance-sheet amounts, which are measured at a point in time, should be converted at the rate on the balance-sheet date, while revenue, earnings, and cash flows, which accumulate over a period, are better converted at an average rate for that period. Using one rate for everything distorts ratios that mix the two, such as return on assets. Some foreign filers also present a convenience translation of recent figures into dollars at a single rate, which is a presentation aid and not a restatement under US GAAP.

Currency conversion can move reported growth rates significantly. A company whose local-currency sales grew steadily can show flat or falling dollar sales if its currency weakened, so analysts often compare growth in both the reporting currency and the converted currency.