I'm not sure where to begin with this... Let's go through this with a simple example.
I buy one item of stock for $100 in the hopes of making $130 from it. After holding it for a few months I come to the realisation no one wants to buy it for $130 so I discount the price I want to $100. Still no one wants it so a write down its value to $40 (being the price I believe I can realistically now realise the inventory for). After the write-down I subsequently sell the stock for $40.
The expense to write down the stock is $60 and at the time it is incurred it is a non-cash impact to earnings. It likely goes through the cost of goods sold line on the P&L when the provision is raised. When I sell the stock I recognise $40 as sales revenue on the P&L and a further $40 cost of goods sold expense (as I have already recognised $60 of the original $100 purchase cost as a cost of goods sold expense).
Hopefully you will have noticed in the whole process that I paid $100 cash for the stock item in question and got $40 cash for it. I have lost $60 cash in this process. The cash loss was equal to the non-cash charge to the P&L when I wrote the wrote-off part of the inventory value.
In this case the inventory write-down is an admission I have wasted $60 on inventory I purchased for $100 which I can only get $40 for.
The case above is what happened for DSH in Nov-15. The $60m write-down was non-cash at the time it hit the P&L but was an admission that $60m of shareholder money had been burnt through historical inventory purchases.
If you disagree with the above I'd appreciate you walking me through your thinking with an example.
DSH Price at posting:
35.5¢ Sentiment: None Disclosure: Not Held
