http://www.dowjones.com/newstoprofitby/stories/WSJScoresExclusiveOnSonysForeignExchangeExposure.asp
If a company has hedged cost to revenue, then only the profit component will benefit via traslation. For Nintendo, whose projections were based on 80 yen to the dollar, this recent JPYUSD movement might greatly enhance buttomline assuming the weakness persists for 12/31/12 and more importantly 3/31/13. The way Japanese companies report their income, the entire currency gain or loss is caught up at year end, so if Quarters 1 and 2 were based on 75-80 yen, but year end was actually 88-90 yen, there exisits a huge translation correction at year end, assuming no actual repatriation of dollars and euros happened.
For Sony if the 2011 article reflects their approach, a 100% cost hedged company stands to neither gain nor lose from currency fluctuations. However, any contribution margin from abroad could still be boosted in Yen terms due to corporate yen based costs and overhead. But that difference would be very small due to the small profit margins.
Easier way to see is, for a company 50% hedged on cost. A 20% windfall from foreign revenue translation, assuming 20% profit margin on 100 dollars of revenue would be, original 100-80=20, now 120 - 88 = 32 or a nearly 60% boost to profit margin, or a much greater % boost to net income as all of that drops straight to buttom line.
For a 100% hedged operation though....100-80 =20, now 120-96= 24, or just 20% boost . Sohere's hoping that Sony's treasurer was merely boasting and that Sony didnt commit itself to "locking" in the weak dollar. :(
Now if that treasurer was a nutcase and actually did achieve 100% hedge literally, that meant Sony took a 20% position of cost so that even anticipated profit contribution was financially hedged. Then this recent trend in yen reversal would result in a loss on that hedge and cancel out the small boost on profit margin.
