Revenues, Profits and Fair Value AdjustmentsJust for clarity I thought it might be useful to clarifiy some terms being used on this board.
Firstly revenues are sales resulting from product being shipped are net of returns, discounts, sales taxes etc. Once paid there is no risk of the receivable becoming a bad debt.
Profit is very different and is a result of all revenues plus other forms of credits such as increases in the value of assets, investment income etc less cost of sales, overhead expenditures, finance costs including interest and depreciation. Post tax profit is after the tax provision.
In certain types of farming the accounting governing bodies permit the valuation of inventories and standing crops to reflect the growth which occurs over time. In the Cannabis sector in Canada, note not in the US, the value of the biological assets and inventories can be increased beyond their cost, which is the 99.9% rule for valuing inventories in accounting, This means that one could, from an accounting perspective, have no sales of product but a very large credit for the Fair Value Adjusment or Increment. This credit would not appear in the revenue line o the income statement but below in cost of sales adjustments.
Lets say that NRTH in Q3 has $3m in revenues, products delievered, and a $15,000,000 fair value adjustment. If costs of sales and all other costs were say $10 million the profit reported would be $8 million. Crazy eh!!
Look great doesn't it. But Allison and her team still have to sell the inventories and turn it into cash. So as we move to close what apears to date to be a successful harvest, fingers crossed, all eyes shoud be focused on SALES.
GLTA