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6 comment(s). Last comment by pingdan 2016-01-20 13:59

Koon Bee

283 posts

Posted by Koon Bee > 2016-01-20 13:11 | Report Abuse

I also blur blur

cheeseburger

2,628 posts

Posted by cheeseburger > 2016-01-20 13:40 | Report Abuse

mostly they have hedge the currency in a fixed rate that remain stable for 2-3 quarters if not a year. And it could be quarterly pricing that fix the exchange rate that not subject to free float unless +/- 5% (as example)
So it "usually" will not happen that in this quarter Seller receive PO in this rate and after mid of quarter Buyer make payment in different rate.
I would agree in quarterly report the forex gain/loss will not contribute anything, we have to look at big picture when the new rate cut in and, say USD is in long term appreciation, then it mean something.

pingdan

1,548 posts

Posted by pingdan > 2016-01-20 13:50 | Report Abuse

Question 1: Correct
Question 2: Average currency rate

I give my own opinion here. Revenue should used average currency rate.

I posted my simple example for my explanation (for your information, this is only example, might not be right as sales might be more for some months for the company and lesser for some months of the company)

Let's say

There are 3 sales in last quarter
1st October 2015 - USD100 or RM300
1st November 2015 - USD100 or RM400
1st December 2015 - USD100 or RM500

Currency rate
1st October 2015 - USD1 =RM3
1st November 2015 - USD1 =RM4
1st December 2015 - USD1 =RM5
Average rate of USD = (3+4+5)/3=RM4

So total sales is RM1,200.

Hence average rate should probably be the best indication for counting revenue.

But u also need to consider the ending rate during that months. If there is big changes, the company will suffer losses.

pingdan

1,548 posts

Posted by pingdan > 2016-01-20 13:56 | Report Abuse

Others things to consider is
1) material cost - Need to consider whether it is in US dollar?
Buy from local company? Import from foreign company? How many percentage it consists?

2) Labour cost, rental expenses, depreciation expenses, oil price, electricity price

Basically, this one you need to see where their production operated. If in Malaysia, it should be consider cost saving as all of this paid in ringgit Malaysia. If outside Malaysia, not much benefit they will gain as only Malaysia ringgit depreciated the most

3) Government policy for foreign company

Basically you need to know about their countries. Whether any changes in minimum wages, electricity cost, oil price, tax rate and others

4) Competition

Are the company you invested have competitive advantages?

Will you company force to reduce price by customer when they know that your cost of sales reduce so that they will continue supporting you?

These is my opinion. I might be wrong.

pingdan

1,548 posts

Posted by pingdan > 2016-01-20 13:59 | Report Abuse

Question 3: It is adjustment for reserves in balance sheet.

Example:

30/6/2015: USD100,000 in their reserves in Vietnam (using rate of USD1= RM3.7)

30/9/2015: USD100,000 also, but using rate of USD1= RM4.40

Hence foreign currency translation of RM70,000 incurred (440,000 - 370,000)

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