Question on EBITDA and Adding Back D&A
If a company has a line item for D&A on the Income Statement would you ever add back this amount of D&A vs the D&A on the CFS? What causes the difference between the two?
Trending Content - Investment Banking Forum
| +233 | Coverage Banking is Paradise | 29 | 6d |
| +178 | UBS preparing for a October Layoff Massacre | 135 | 1m |
| +121 | London Recruiting is Paradise | 47 | 4h |
| +77 | My Motivation Is At An All Time High | 13 | 4d |
| +58 | Work and Suicide | 24 | 5h |
| +49 | Is 7 years in banking enough to retire, or am I delusional? | 27 | 11h |
| +46 | Do actual investment bankers despise IB TikTokers as much as I think they do? | 28 | 8h |
| +34 | MM IB --> NYC IB? | 17 | 1d |
| +27 | Should I escape the matrix | 5 | 16h |
| +27 | A Message to Students Who Think this Job Will Fix Their Life | 5 | 57m |
Career Resources
deleted
You should use the D&A on the CFS. I believe that sometimes some depreciation can be embedded in COGS. According to Investopedia, the source of the depreciation expense determines whether the expense is allocated between cost of goods sold or operating expenses, so you should use D&A from the CFS for accuracy.
On the CFS you use the difference between the Accumulated Depreciation on the balance sheets (starting and ending). The Income statement depreciation shows depreciation expense. There are two instances that I know of where depreciation is not an expense: (1) it becomes a product cost because GAAP accounting requires absorption costing - in this case depreciation becomes a part of COGS, inventory or WIP and (2) fixed assets used for R&D are to be expensed to R&D and not depreciation.
Edit: this is why you always use the difference in accumulated depreciations.
Nice didn't know this. Thanks!
Does instance #1 also apply to IFRS?
Seems like yes... I just put 'IFRS absorption costing' into the google machine and it said that it is required for it to be compliant.
Think this is saying that CFS D&A should be the change in B/S D&A and not necessarily the income statement D&A.
If you are adding something to EBIT to get to EBITDA, you should take it from the CFS. No need to get from B/S. If the company is doing acquisitions, the B/S method will actually be wrong
If I have a BS and an IS and I am trying build out a CFS, which do I use as my D&A? Given my comment above about not having all of the D&A expensed, then where do I get the correct D&A?
ok
There may be an instance that under certain conditions for the GAAP, the depreciation may actually become a product cost and thus can not be added back to the net income to arrive at the Cash from Operations amount. I would generally use the difference in the Accumulated Depreciation amount (current period - previous period) as this will be solely the contra-account for non-cash depreciation to the PP&E and thus would be the proper add-back. This amount must match the add-back amount on the cashflow statement.
Non accusantium vero ipsam. Mollitia enim hic recusandae et. Aperiam id dolores et neque.
Doloremque nihil ut aut consequatur at. Et veritatis aut dolor voluptas qui qui. Dolore deserunt illo quis iure quia dolor expedita.
Distinctio velit facere in soluta modi explicabo aliquid vero. Adipisci vero corporis nam. Et maxime quia non.
Velit veniam quis ut ratione voluptatem quo ut ea. Maiores enim quia dolores qui eligendi nobis. Cumque soluta possimus velit architecto non et laboriosam veniam. Praesentium aut et est maiores ducimus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...