”I’m not so sure this analysis is correct madam.
The reason for the rather large fx gain in the prior year most most likely due to unpaid sale(s) (i.e trade debtors) booked sometime prior to the subsequent “mini crash” in the aud when financial markets imploded late last year.“@Klutch,
Thanks for your insightful comments.
If I’m wrong (the chances thereof are far from slight), then it’s flawed analysis that I’ll be happy about, because it will mean that the underlying earnings of the business are running somewhat higher than I think.
So, to paraphrase what you are saying:
At the time of recognising the sale, which has been invoiced in non-A$ terms, a receivable arises on the balance sheet. And to the extent that the exchange rate at period-end balance date is different to what it was at the time of sale, because SDI’s functional currency is $A, that receivable needs to be marked-to-market, which is reflected in the P&L as a forex gain (or loss).
For some reason - I think it was in discussion with the CFO some years ago - I had informed the view that these trading forex gains/losses washed through some sort of currency translation reserve account, and that the forex gains and losses that hit the P&L were due to accounting for assets and liabilities denominated in non-A$ terms.
It didn’t occur to me that that would include not just non-current assets, but also current assets, such as receivables, as you have pointed out.
What your post has also done is provided some clarity in my mind of the determinants of recognised, versus unrecognised, forex gains and losses.
The interesting thing about these items is that they have become more pronounced in recent financial periods. Previously, the forex gains/losses have been smaller despite larger exchange rate movements.
But if you are indeed correct, then the stock is trading on a P/E multiple that is almost a full point lower than I had thought, at a little over 12x (or around 11.5, if the surplus cash is stripped out).
Again, thanks for sharing your thoughts.
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(20min delay)