Re: Depreciation and Amortization are non cash charges.
But spending on Property, Plant, and Equipment PP&E) and spending on acquisitions are cash costs.
And those are cash costs that do show up in earnings statements later, but aren't reflected in current earnings. To a degree, this is as it should be, since the value of that PP&E, and of those acquisitions isn't necessarily "used up" in the quarter that the money is spent.
But when a company reports a large increase in those categories, especially at a time when revenue and market share are falling, despite that much greater "not yet used up" capability, it's suspicious.
Intel reported that it made about $6 Billion in the past year and that it's expenditures have provided intangible benefits worth about $6 Billion, as well as that it's PP&E is now worth about $5 Billion more than it was a year ago.
Accounting for a company that incurs a substantial portion its costs for the acquisition of assets that depreciate rapidly and unevenly is extremely difficult. I think Intel has been pushing its luck with its accounting assumptions, and that's how they reported earnings of $6 Billion in a period in which their working capitol dropped by $5 Billion.
If they hadn't increased the value of their PP&E on paper and designated $6 Billion in costs as "goodwill", Intel would have had to report a loss of about 70 cents per share for the past year, instead of earnings.
Maybe their choices were correct, but they've taken a gamble, becaue those costs remain to be taken and will be a drag on future reported earnings. |
