Foreign exchange gains and losses

Foreign exchange gains and losses are the profits or losses a company records when exchange rates move on money it is owed, owes or holds in another currency.

A US company that sells to a European customer and is paid in euros a month later records a gain if the euro rose against the dollar in that month, and a loss if it fell. The same applies to cash, receivables and debt held in other currencies, which are revalued at the end of each reporting period.

These gains and losses usually sit below operating income because they come from currency moves, not from running the business. They are typically small and swing between positive and negative from year to year. A large or persistent figure signals significant currency exposure, so check whether the company hedges that risk.

This line differs from the exchange rate effect on cash on the cash flow statement, which shows how currency moves changed the cash balance itself.