“Non-trivial” in accounting treatment: The increase in currency price cannot be reflected in the financial report performance.
Editor’s note: This article is from Tencent news Peris, author: Ji Zhenyu from the bottom of the valley.
The news that Tesla bought Bitcoin for $1.5 billion last month detonated the market and became one of the most high-profile listed companies in the market that announced their holdings of Bitcoin in recent times. Recently there has been news that with the increase in currency prices, Tesla’s investment in Bitcoin has already brought it $1 billion in investment income, exceeding its corporate profits for the entire year of last year.
In fact, there are obvious misunderstandings in this statement, which is a simple and crude and irresponsible understanding. Tencent News “Periphery” checked Tesla’s annual report on Bitcoin holdings and found that in the company’s financial report, Tesla identified Bitcoin assets as an “indefinite-lived intangible asset.” intangible assets), included in the intangible assets-goodwill item under the cost method.
Under this accounting confirmation method, in accordance with the corresponding accounting standards, Tesla will need to perform an impairment test on the asset in each quarter in the future. If the impairment is established, it will be impaired accordingly It is directly included in the income statement, and the value of the bitcoin assets held is adjusted accordingly. In short, as long as the Bitcoin asset exists in Tesla’s financial report for one day, its value can only be lowered in the future, but not raised, unless Tesla sells it for “realized gain”.
Due to the particularity of digital currency assets such as Bitcoin, the current mainstream international accounting standards require companies that hold related assets to treat them as intangible assets for corresponding accounting confirmation, which will need to be carried out in the future. Impairment testing, therefore, listed companies holding Bitcoin or other digital currency assets cannot directly reflect the book gains brought by the rise in currency prices in their financial reports. This is especially worthy of investors’ vigilance.
Considering Tesla’s public statement that it may hold bitcoin for a long time, in this sense, holding bitcoin not only cannot add luster to Tesla’s financial report due to the rise in currency prices, but on the contrary Will form a direct drag on its performance.
In addition to the details of the accounting confirmation rules, Tesla’s massive purchase of Bitcoin is itself quite controversial. In the eyes of many institutional investors with strict investment regulations and guidelines, Tesla’s move is equivalent to Changes in its own stock price are further exposed to higher market volatility. The nature of this stock has become closer to speculative properties, and has exceeded the investment scope strictly stipulated by many institutional investors’ investment terms. Therefore, they have to choose to sell the specialties in their hands. Sla stock has further contributed to the recent consecutive decline in Tesla’s stock price.
Develop from business operationFrom a point of view, Tesla invested a large amount of surplus cash in Bitcoin, which had to shake confidence in its future business development, and superimposed on the new round of capacity bottlenecks encountered by Tesla recently. The fact that the performance in the fourth quarter of last year was not as good as expected, this concern is not groundless.
Tesla invested heavily in Bitcoin, and its stock price plummeted by more than 30% in one month
Tesla’s massive purchase of Bitcoin for $1.5 billion does not seem surprising. After all, the company’s CEO Elon Musk has repeatedly praised Dogecoin on his personal Twitter before. It is easy to think of Tesla’s investment in digital currency assets sooner or later. On the same day that it announced the purchase of Bitcoin, Tesla also announced that it would accept Bitcoin as the purchase of Tesla electric cars in the near future. The payment method of the product.
This move immediately caused the currency digital world to boil. The world’s most well-known electric car brand and the world’s richest man have begun to bind these concepts with Bitcoin. There is no doubt that investing in Bitcoin or other digital assets is undoubtedly extremely Great boost and inspire meaning.
Bitcoin is naturally the most direct beneficiary. Less than two weeks after Tesla announced the purchase of Bitcoin, the price of Bitcoin hit an all-time high of $58,000. At the same time, according to relevant statistics, the global digital currency transaction volume increased by 17% from the previous month to US$2.7 trillion in the month when Tesla announced the purchase of Bitcoin.
But just two days after hitting a new high, a tweet from Musk that “the price looks too high” caused the Bitcoin price to drop rapidly to $43,000, a drop of more than 25% from the highest price. Bitcoin transaction volume reached a record 160 billion U.S. dollars.
Subsequently, the price of Bitcoin gradually stabilized and showed signs of recovery, and it is still standing above $50,000.
But in contrast, Tesla’s stock price has taken a turn for the worse. Since the announcement of its investment in Bitcoin on February 8, Tesla’s stock price has fallen all the way down, and it has fallen by more than 30% in the past month.
If other factors are excluded, from the point of view of the impact of the Bitcoin investment event alone, this move will have a significant negative impact on Tesla’s stock price in the short term.
The “tricky” in accounting treatment: the increase in currency price cannot be reflected in the financial report performance
Because the $1.5 billion investment in Bitcoin is not Musk’s personal behavior, but Tesla’s corporate behavior, why Tesla’s investment decision needs to be more at the corporate level. For this, Tesla’s The explanation of is actually very vague. It only made a brief announcement in a few sentences in its annual report, and did not give a more detailed explanation of the reason.
Tesla stated in its annual report that in January 2021, the company updated its investment policy to allow the company to have more flexibility to further diversify the cash portion of the company that is not limited to operating liquidity. riskAnd maximize returns.
“Based on this policy, we may invest part of the cash in certain reserve assets, so we invested a total of 1.5 billion US dollars in Bitcoin.” Tesla said in the annual report.
From the above limited expressions, it can be seen that Tesla’s own understanding of investing in Bitcoin is the same as the basic principle of investing in other assets, to diversify and maximize the return on investment of the excess cash on the company’s account. As of December 31, 2020, Tesla’s cash and equivalents have reached 19.3 billion U.S. dollars. How to make good use of this huge amount of funds really needs to test Tesla’s wisdom in this regard. But the particularity of this move is that, in addition to supporting the further development of its own business, usually the company’s cash may be used to invest in mergers and acquisitions or invest in low-risk assets with high liquidity, such as bonds, and also to hedge against the risk of cash depreciation. Investing cash in Bitcoin, which is extremely risky and has no actual business, is an unconventional move by a company to use cash.
Of course, following the rules has never been Tesla’s style. Maverick and avant-garde have always been one of Tesla’s labels. It is also one of the important reasons why the Tesla brand is sought after by countless fans. Therefore, from this In a sense, investing in Bitcoin is not particularly unacceptable for Tesla, considering that Tesla has announced that it will accept Bitcoin as a payment method for consumers to purchase Tesla products in the future. , This move is easier to understand. For Tesla, Bitcoin will have certain practical uses in the future.
(Musk talks about the understanding of Bitcoin: only slightly better than fiat currency)
In addition to Tesla’s official statement, Tesla CEO Musk also made a certain statement about investing in Bitcoin. He said on his personal Twitter, “I’m not an investor, I’m just As an engineer, I don’t own any stocks except Tesla.”
For investing in Bitcoin, he said that when fiat currencies face negative real interest rates, only fools would not consider investing fiat currencies in other areas.
“Bitcoin is almost as bad as fiat currency. The key word here is ‘almost’.”
From Musk’s personal explanation, it can be seen that Tesla’s investment in Bitcoin was not based on the “investment” consideration of asset appreciation, but because cash depreciated too much due to negative interest rates, and he himself was not a Bitcoin. A staunch believer of currency,It’s just that Bitcoin is slightly better than fiat currency.
Therefore, it is obviously too simple and rude to understand that Tesla invested in Bitcoin for investment income. At the same time, a news published on February 21 by financial television station CNBC stated that Tesla invested in Bitcoin. There is also an obvious misunderstanding that the investment income obtained by the currency exceeds the profit of last year.
If you simply compare the current currency price with the price when Tesla purchased Bitcoin at $1.5 billion, you can conclude that Tesla’s investment income or loss is a lack of professionalism.
(Tesla clearly pointed out in the annual report: Bitcoin is regarded as an intangible asset for an indefinite period for confirmation, and an impairment test is required in the future)
Tesla announced the Bitcoin investment at the same time, it also announced the accounting confirmation method of Bitcoin investment and related digital currency investment in the future, that is, Bitcoin or other digital currencies are regarded as “indefinite intangible assets” (indefinite- lived intangible assets) are included in the “intangible assets-goodwill” item, and are included in the financial statements using the cost method when initially included in the financial statements, and then an “impairment test” is performed every quarter, if the test confirms that the current fair price has fallen , Need to be included in the corresponding impairment and directly reflected in the current income statement.
Tesla also clearly stated that digital assets accounted for by the cost method cannot be accounted for in the future due to changes in their trading prices on any active exchanges, and any so-called gains can only be made when they are sold. Realize in accounting.
According to this accounting confirmation method, in simple terms, as long as Bitcoin or other digital currency assets exist on Tesla’s balance sheet for one day, Tesla will not be able to confirm any investment income about it, only When the currency price falls, the corresponding impairment will be included in the income statement every quarter, and the value of the bitcoin or digital currency assets held will be adjusted downward accordingly.
Performance prospects are worrying, investor confidence is frustrated
In addition to the details of the above accounting confirmation standards, Tesla’s investment in Bitcoin itself has also caused widespread doubts from investors in the market, including institutional investors.
As we all know, the past performance of Bitcoin reflects that it is a highly volatile asset. Therefore, Tesla replaced a huge amount of cash with Bitcoin, undoubtedly binding itself to this high volatility. This is the unwillingness of many institutional investors who emphasize robustnessIntended to see.
Since institutional investors have strict regulations on the choice of investment targets, they need to strictly conform to the investment objectives, risks, and time frames set in their investment terms. Therefore, Tesla’s extraordinary move is actually It has far exceeded the scope of investment standards set by many institutional investors, so under strict investment conditions, it has to choose to sell.
The most eye-catching of these is Ron Baron, Tesla’s long-time vocalist. The fund he manages has sold 1.8 million Tesla shares to customers in the past six months, despite his personal views on Tesla. The shareholding has not changed. Although as a long-term and staunch supporter of Tesla, Ron Baron is also quite puzzled by Tesla’s massive purchase of Bitcoin assets. He uncharacteristically did not help Tesla to clarify, but said in an interview, Musk can do whatever he thinks is right.
Some institutional investors also believe that although Tesla’s $1.5 billion investment in Bitcoin has a direct impact on its valuation less than $1 per share after tax, the psychological impact is huge. This way In the eyes of many institutional investors, Tesla stock has become more like GameStop, SPACS, MSTR and other highly speculative stocks, so institutional investors are afraid to avoid it.
From the perspective of corporate financial management, Tesla’s move is rarely endorsed by other listed companies, because the stable preservation of the company’s assets is the primary consideration for the company’s financial management. Traditionally, assets with high volatility Almost never enters the scope of consideration as the company’s excess cash allocation. Judging from past performance, Bitcoin’s volatility far exceeds that of traditional assets such as stocks, government bonds, and gold.
(Bitcoin price volatility far exceeds other traditional assets)
According to a questionnaire survey conducted by the US research agency Gartner last month, only 5% of the 77 CFOs or senior financial managers of listed companies participating in the survey indicated that they plan to hold on the company’s accounts in 2021. Bitcoin. 84% of the interviewees stated that they do not plan to hold Bitcoin as a company asset. The biggest concern is its high volatility, followed by the current low market acceptance of it as a means of payment and many regulatory uncertainties Sex.
In addition, combined with the recent performance of Tesla’s business, such unconventional actions are even more worrying. Last year’s fourth quarter