With the recent volatility of the rupee, more and more companies are seeing the "other income" component of their quarterly accounts bouncing around like tennis balls.
This is particularly true for IT companies, whose top line has very little protection from this volatility.
Equity analysts have sharpened their focus on this element of the accounts and, even though they should know better, sometimes factor this "uncertainty" into their assessment of the company's future worth.
The reality, however, is that the volatility of other income (or, more specifically, forex gain/loss) has very little to do with the actual worth of the company.
From a bottom line perspective, a business revenue of, say, Rs 1,563 crore plus other income of Rs 17 crore is exactly the same as business revenue of Rs 1,600 crore plus other income of minus Rs 20 crore!
(Of course, this point does not hold true for banks, where "other income" specifically includes trading profits, which are actually a core activity of the bank.)
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Forex-smThe fact that a company has negative other income does not mean that it lost money on forex; correspondingly, a company that has positive other income has not gained money on forex.
Also, if the scale or sign attached to other income changes from quarter to quarter, it does not mean that the company has an ill-advised forex risk management policy.
Forex gain/loss simply clocks the difference between the rates prevailing on the date the revenue item is booked and the rates at which the company realises the revenue.
It is merely--and this word is not intended to raise the wrath of the accountancy profession, God bless them--a way for accountants to keep track of the value of the company's foreign currency-denominated receipts or payments.
As we know, accounts only report definite (and definitely...