Currency devaluation good or bad for company?

[viciam]

Hi guys,

Here is an excerpt from a filing.

"It is worthwhile to note that all customer sales contracts are denominated in US$ and the (Argentine) AR$ has been devaluing against the US$. Over 2012 the devaluation was 14.1% and over the first six months of 2012 devaluation has been 9.5%"

So if the company is based in Argentina, is this good or bad for the company? Please explain. I'm a little confused.

Many thanks

 

[Zedd]

At first glance:

The contract is for the Argentinian company to deliver X goods for the price of US$Y, which are then converted back into AR$ for the companies books. They've fixed the price in $US which means they will now be receiving more AR$ than previously expected. If cost of goods held then they've increased their profits.

 

[viciam]

At first glance:

The contract is for the Argentinian company to deliver X goods for the price of US$Y, which are then converted back into AR$ for the companies books. They've fixed the price in $US which means they will now be receiving more AR$ than previously expected. If cost of goods held then they've increased their profits.

So essentially it is this: Every USD will buy more AR$ because the AR$ is cheaper than the US$???

And because cost of good expenses are in AR$ and the cost hasn't increased, the company will see a better margin. Cost of goods are expenses in AR$ because the company is paying for the cost to suppliers who are based in Argentina, is this correct?

So overall it is a good thing for the company?

 

[clowboy]

So essentially it is this: Every USD will buy more AR$ because the AR$ is cheaper than the US$???

And because cost of good expenses are in AR$ and the cost hasn't increased, the company will see a better margin. Cost of goods are expenses in AR$ because the company is paying for the cost to suppliers who are based in Argentina, is this correct?

So overall it is a good thing for the company?

Yes, but what are they supplying? if they have input costs that are based in USD then the cost of making? the goods will also go up by an equal amount.

Ie if they buy steel in usd, make cars and sell them in usd then costs go up and revenue goes up.
if they are selling pineapples then for the most part the cost will stay the same and profits will go up (from the currency conversion)