A proper assessment of Risk lies in the proper assessment of Stability of "Value" (Howard Marks). Stability of Value depends on "stability of future cash flows" (Mike Mauboussin). Stability of future cash flows in turn, depends on Industry Stability and Competitive Strategy/Position of the business in the Industry (Howard Marks)
Wednesday, 1 August 2012
CAPEX AND AMORTIZATION
CAPEX the expenses which needs to be capitalized in the balance sheet. These include the expenses which augments the productive capacity or the asset quality.
These are debited to an asset account and are depreciated.
Expenses which increases the life of an asset are debited to the accumulated depreciation account, and all the maintenance expenses are expensed.
Expenses like Plant re arrangement costs, Computer software costs etc are capitalised as intangible assets. They are amortized.
All the intangible assets are amortized. Some of the intangible assets includes Computer software costs, plant rearrangement costs, deferred charges such as prepaid insurance, rent etc, goodwill, patents, trade marks and names, copy rights, rented property modifications, franchise fees (not for perpetual or permanent) , discount account for hidden interest costs in zero coupon liabilities etc.