Depreciation
AccountingThe systematic allocation of an asset’s cost across its estimated useful life.
In plain terms
The estimate is management’s. Extend asset lives and profit rises, with no change to cash.
1492 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
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Deferred tax liability
AccountingAlso called: DTL
Tax deferred to later years, most often because tax depreciation runs ahead of book depreciation.
In plain terms
Ordinary in capital-intensive businesses. It reverses as the asset ages and book depreciation catches up.
EBITDA
AccountingEarnings before interest, tax, depreciation and amortisation.
In plain terms
Munger’s test: try reading it as "earnings before the bad stuff" and see if the argument holds.
EV/EBITDA
Fundamental analysisEnterprise value divided by earnings before interest, tax, depreciation and amortisation.
In plain terms
The only common multiple that accounts for debt. Use it whenever leverage differs.
Regulated return on equity
Fundamental analysisThe return on equity a regulator permits an asset to earn, built into the allowed revenue alongside approved capital cost, depreciation, operations and maintenance and interest.
In plain terms
The commission sets a return rather than a price, so the analysis moves to the allowance and the disallowances. Regulatory lag is where the margin actually goes: between an input cost rising and a tariff order recognising it, the company funds the gap itself.
Amortisation
AccountingSpreading the cost of an intangible asset across its useful life.
In plain terms
The intangible equivalent of depreciation. Goodwill is the exception — it is not amortised.
Assets held for sale
AccountingAlso called: Held for sale, Disposal group
A balance-sheet classification for assets and liabilities whose value is expected to be recovered principally through a sale rather than through continuing use.
In plain terms
Made before the sale completes, and it pulls the division out of its usual lines into one block. Depreciation on those assets stops from the date of classification.
Capitalised borrowing cost
AccountingAlso called: Interest capitalisation
Interest directly attributable to acquiring or constructing an asset that takes a substantial period to get ready, added to the cost of that asset instead of charged against profit.
In plain terms
The money still leaves the bank; it simply does not appear in the finance cost line. When the asset is ready capitalisation stops, the finance cost steps up with no new borrowing, and the amount already capitalised returns as depreciation rather than interest.
Fixed cost
AccountingAlso called: Fixed vs variable cost
A cost that does not change with the volume produced or sold over the relevant range.
In plain terms
Rent, salaries and depreciation. They arrive whether forty customers come or four hundred.
Working capital change
AccountingThe movement in receivables, inventory and payables, adjusted against profit on the way to operating cash flow.
In plain terms
Where profit recorded but not collected disappears. Profit of ₹300 crore plus ₹120 crore of depreciation, less a ₹410 crore rise in receivables, leaves about ₹10 crore of operating cash.