Some very interesting discussions going on above. From my own experience working in the electronics industry and running a wholesale business the write down is a realisation that the value in inventory has changed. For electronics inventory it reflects obsolescence or slow and out of fashion goods that are not selling. The accountants on HC will tell you that some adjustment is a P&L item otherwise it stays as a balance sheet item.
Bottom line is cash is used to buy stock and the stock stays as a current asset. If the inventory no longer attracts the same value you make an impairment.. Therefore the cash that you once had is worth less in its current form of inventory. It still cost the same to purchase but the carrying value is less. Your company asset backing must come down per share because the business is worth less.
Therefore the argument that its a non cash effect is a little misleading given that an asset can change its form (cash to inventory to cash again once sold). The value has simply moved downwards after the asset has changed from cash to inventory.
Just keeping it simple.
DSH Price at posting:
35.5¢ Sentiment: None Disclosure: Held
