Effect of Foreign Exchange Rates on Cash

Category

Cash Flow

Units

Currency

US-GAAP elements

EffectOfExchangeRateOnCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsEffectOfExchangeRateOnCashAndCashEquivalents

Reference

ASC 830, Foreign Currency Matters; ASC 230, Statement of Cash Flows

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

The effect of foreign exchange rates on cash is the line on the cash flow statement that shows how much a company's cash balance rose or fell during a period purely because currency exchange rates moved. It applies to cash, cash equivalents, and restricted cash held in currencies other than the company's reporting currency.

It is not a cash flow in the usual sense. No money came in or went out; the same foreign-currency balance is simply worth more or less when translated into dollars.

ASC 830 and ASC 230 require a company to translate foreign-currency cash flows at the exchange rates in effect when the flows occurred, with a weighted-average rate for the period allowed as a practical shortcut when the result is substantially the same. Balances, however, are translated at the period-end rate. The difference between those two treatments, applied to cash held abroad, is reported as a separate part of the reconciliation of beginning and ending cash, outside the operating, investing, and financing sections. In XBRL, companies tag the line EffectOfExchangeRateOnCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents under current practice, or EffectOfExchangeRateOnCashAndCashEquivalents in older filings.

A strengthening US dollar produces a negative figure for a US company with cash held in weaker currencies, and a weakening dollar produces a positive one. The amount depends on how much cash sits in foreign subsidiaries and in which currencies, not on the company's overall foreign revenue. A company with large overseas sales but little cash held abroad may report a small figure.

Analysts mostly treat this line as noise to be set aside when judging cash generation. It becomes meaningful for multinationals holding large cash balances outside the US, or for companies with operations in countries with volatile or rapidly depreciating currencies, where it can be a persistent drag on reported cash.