Depreciation in COGS
I am working on the factory financial model. Therefore, depreciation costs of the Plant and Equipment are included in COGS, as these fixed assets are used in the direct production of the inventory.
My question is - as far as all the fixed assets company owns is just an equipment that is used in direct production of the products (no other administrative buildings/equipment) and there are no amortization costs, will EBITDA and EBIT of this company be the same?
For instance:
SALES: 100
COGS incl Depr: 80
GROSS Profit: 20
SG&A: 5
EBITDA: 15
D&A: 0
EBIT: 15
Nope. You will add back D&A to get to EBITDA all the same. The depreciation charge exists (you can find it in the CF statement), so you'll get to EBITDA.
Ultimately, EBITDA exists as a proxy for actual cash. No matter where D&A is included, it will still be a non-cash charge, thus a "correction" will still be warranted.
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