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Financial Terms | |
Depreciation |
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Definition of DepreciationDepreciationA non-cash expense that provides a source of free cash flow. Amount allocated during the DepreciationA technique by which a company recovers the high cost of its plant-and-equipment assets gradually during the number of years they’ll be used in the business. depreciation can be physical, technological, or both. Depreciationa) Of capital stock: decline in the value of capital due to its wearing out or becoming obsolete. DepreciationAmortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life. DepreciationAn expense that spreads the cost of an asset over its useful life. DepreciationBoth the decline in value of an asset over time, as well as the gradual DepreciationReduction in value of fixed or tangible assets over some period depreciationRefers to the generally accepted accounting principle of allocating ![]() DepreciationThe systematic and rational allocation of the cost of property, plant, and equipment
Related Terms:Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Accumulated depreciationA contra-fixed asset account representing the portion of the cost of a fixed asset that has been previously charged to expense. Each fixed asset account will have its own associated accumulated depreciation account. accumulated depreciationA contra, or offset, account that is coupled Accumulated depreciationThe sum total of all deprecation expense recognized to date Depreciation AllowancesTax deductions that businesses can claim when they spend money on investment goods. Depreciation expenseAn expense account that represents the portion of the cost of an asset that is being charged to expense during the current period. Depreciation tax shieldThe value of the tax write-off on depreciation of plant and equipment. depreciation tax shieldReduction in taxes attributable to the depreciation allowance. Double-declining-balance depreciationMethod of accelerated depreciation. Earnings before interest, taxes, depreciation and amortization (EBITDA)The operating profit before deducting interest, tax, depreciation and amortization. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working EBDDT - Earnings before depreciation and deferred taxesThis measure is used principally by Straight line depreciationAn equal dollar amount of depreciation in each accounting period. STRAIGHT-LINE DEPRECIATIONA depreciation method that depreciates an asset the same amount for each year of its estimated straight-line depreciationThis depreciation method allocates a uniform straight-line depreciationConstant depreciation for each year of the asset’s accounting life. Sum-of-the-years'-digits depreciationMethod of accelerated depreciation. tax benefit (of depreciation)the amount of depreciation deductible for tax purposes multiplied by the tax rate; tax shield (of depreciation)the amount of depreciation deductible Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Adjusted EBITDAConventional earnings before interest, taxes, depreciation, and amortization (EBITDA) revised to exclude the effects of mainly nonrecurring items of revenue or gain and expense or loss. AmortizationSee depreciation, but usually in relation to assets attached to leased property. amortizationThis term has two quite different meanings. First, it may AmortizationReduction in value of an asset over some period for accounting AmortizationThe systematic and rational allocation of capitalized costs over their useful lives. Average accounting returnThe average project earnings after taxes and depreciation divided by the average BOOK VALUEAn asset’s cost basis minus accumulated depreciation. Book valueAn asset’s original cost, less any depreciation that has been subsequently incurred. Capital Consumption AllowanceSee depreciation. Capital Cost Allowance (CCA)The annual depreciation expense allowed by the Canadian Income Tax Act. Capital gainThe gain recognized on the sale of a capital item (fixed asset), calculated Cash flowIn investments, it represents earnings before depreciation , amortization and non-cash charges. Cash FlowIn investments, NET INCOME plus depreciation and other noncash charges. In this sense, it is synonymous with CASH EARNINGS. Investors focus on cash flow from operations because of their concern with a firm's ability to pay dividends. Cash flow after interest and taxesNet income plus depreciation. Cash flow coverage ratioThe number of times that financial obligations (for interest, principal payments, cash flow from operating activities, or cash flow from profitThis equals the cash inflow from sales during the period minus the cash Changes in Financial PositionSources of funds internally provided from operations that alter a company's Declining balanceAn accelerated depreciation method that calculates depreciation each year by applying a fixed rate to the asset’s book (cost–accumulated depreciation) value. depreciation stops when the asset’s book value reaches its salvage value. Declining-balanceA method of depreciation. DepletionThe systematic and rational allocation of the cost of natural resources over their useful EBITDAEarnings before interest, taxes, depreciation, and amortization. Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the Fixed AssetsLand, buildings, plant, equipment, and other assets acquired for carrying on the business of a company with a life exceeding one year. Normally expressed in financial accounts at cost, less accumulated depreciation. Flow-through methodThe practice of reporting to shareholders using straight-line depreciation and Funds From Operations (FFO)Used by real estate and other investment trusts to define the cash flow from Internal financeFinance generated within a firm by retained earnings and depreciation. internally generated fundsCash reinvested in the firm; depreciation plus earnings not paid out as dividends. Long-term assetsValue of property, equipment and other capital assets minus the depreciation. This is an MACRS (Modified Accelerated Cost Recovery System)A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes). Modified Accelerated Cost Recovery System (MACRS)depreciation method that allows higher tax deductions in early years and lower deductions later. National IncomeGDP with some adjustments to remove items that do not make it into anyone's hands as income, such as indirect taxes and depreciation. Loosely speaking, it is interpreted as being equal to GDP. Negative convexityA bond characteristic such that the price appreciation will be less than the price Net book valueThe current book value of an asset or liability; that is, its original book value net of any Net Domestic ProductGDP minus depreciation. Net incomeThe company's total earnings, reflecting revenues adjusted for costs of doing business, Net investmentGross, or total, investment minus depreciation. Net InvestmentInvestment spending minus depreciation. Net National ProductGNP minus depreciation. Noncash chargeA cost, such as depreciation, depletion, and amortization, that does not involve any cash outflow. Normalizing methodThe practice of making a charge in the income account equivalent to the tax savings ObsolescenceThe reduction in utility of an inventory item or fixed asset. If it is an Operating cash flowEarnings before depreciation minus taxes. It measures the cash generated from Other sourcesAmount of funds generated during the period from operations by sources other than Positive convexity property of option-free bonds whereby the price appreciation for a large upward change Purchase methodAccounting for an acquisition using market value for the consolidation of the two entities' Safe harbor leaseA lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the Straight-lineA method of depreciation. SUM-OF-THE-YEARS’ DIGITSAn accelerated depreciation method that makes the sum of the digits in an asset’s expected UNITS OF PRODUCTIONA depreciation method that relates a machine’s depreciation to the number of units it makes each User Cost of CapitalThe implicit annual cost of investing in physical capital, determined by things such as the interest rate, the rate of depreciation of the asset, and tax regulations. What would be paid to rent this capital if a rental market existed for it. Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |