pillars of wall street - financial statement analysis - non-current assets Flashcards
non-current assets
are also called long-term assets
assets that have useful life > 1 year
broken into two categories - tangibles and intangibles
tangible non-current assets
long-term assets with physical substance
anything you can touch/is physical
incl. property, plant and equipment (PP&E)
they are reported at historical cost less accumulated depreciation
in the case of land, report at historical cost but do not depreciate because land doesn’t depreciate (usually appreciates)
intangible non-current assets
long-term assets lacking physical substance
non-physical assets
broken down into identifiable and unidentifiable
identifiable intangibles are amortized over their useful life and include intellectual property like patents
unidentifiable intangibles are tested annually for impairment (incl. things like brand name, good will; you need to determine each year if they value of the brand has decreased since its initial purchase)
depreciation and amortization
from accounting point of view, fixed assets are expensed over their useful life
depreciation applies to tangible assets
amortization applies to intangible ones
important = any non-current asset not subject to D&A must be checked annually for impairment; examples of this case incl. land, brand name and goodwill (why? land is not depreciated over time; in fact, land appreciates over time; but say something goes wrong with the land like a chemical spill - in this case you would have to impair the value of the land because its value is permanently affected by this disaster)
salvage value
original cost of asset less its depreciation or amortization over its useful life
aka residual value
what makes tangible assets increase or decrease?
BASE analysis
beginning (the starting value)
additions (includes things like your capital expenditures)
subtractions (includes depreciation)
ending (the final value)
note that the beginning balance of the subsequent year will be equal to last year’s ending balance
what makes intangible assets increase or decrease?
BASE analysis
beginning (the starting value)
additions (includes the purchase of intangibles)
subtractions (includes amortization)
ending (the final value)
note that the beginning balance of the subsequent year will be equal to last year’s ending balance
goodwill
the excess amount paid for a company over fair market value
capital expenditures
two categories = maintenance and expansion
maintenance cap ex is not optional; need this to keep company running at its current level
expansionary cap ex is what is needed to grow the business
if management doesn’t allow for sufficient cap ex., the company will lag behind competitors
replenishment ratio
capital expenditure / depreciation
