Can someone explain how we look at depreciation in FDD? Do we not care about it? Need a little help understanding this

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we are using QoE as a proxy for cash flow. since depreciation is non cash we typically don't care about it. we want to understand historical and planned capex rather than historical depreciation as these represent cash flows and would be inputs into a discounted cash flow model

likesmarthelpful

We can also break out capex between maintenance and growth to get a better idea of what needs to be spent to continue at a certain level

likesmart

You also care about what is being capitalized and depreciated/amortized. For example, I just ran across a business that changed its licensing and internal accounting policy just so they could capitalize and amortize certain costs. While it's technically acceptable under GAAP, presents a Shady scenario for a transaction and should be evaluated on a like for like basis. Reason is this pulls the cash spend out of EBITDA.

likesmart

All good responses, would add that there are certainly some additional considerations, such as capitalized R&D (which does represent ongoing cash costs, despite being capitalized), as well as things like non-capitalized tooling/parts. Always good to understand what is/isn't capitalized.

likesmart

A positive response, love this

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