> I agree with depreciation and other non cash expenses obfuscating P&Ls, but can we agree that in an article focused on securing debt financing, which will incur real interest expense, the term “free cash flow profitability”, “loosely” meaning “profitability” is a little misleading
It depends on the industry. DO is in the capex heavy industry so depreciation is not a funky accounting cost, it is actually something that's applicable to the vast majority of their assets.
Yeah, this was my first thought. Technically if you go back in time and model past Cash Flow Statements, you could layer on what you think the real go forward infrastructure cost is to their CFS.
If they are consistently laying out capex, it actually could be very reasonable to just use CFS and not opex.
Software is not typically depreciated though. DO is writing code now that will last for decades but they have to take the accounting hit for it in one year.
At least in my small European country, I believe you can use a deprecation schedule for software as long you buy it externally, instead of creating it in-house.
The same is true for other creative work/IP. The reasoning being, I believe, that it is hard to appreciate (as in: set a monetary value) for such work. If you buy, you’ve given the open market a chance to work its magic and the price is believed to be closer to something like truth.
This might go a long way towards explaining why company management in Europe often have some kind of mysterious love for vendor supplied software and doesn't see any in-house development as a competitive advantage or worth spending on maintaining.
I maintain some LOB PHP5 apps, that started as PHP3 - these internal systems are over 10yr old. Just chugging along, producing value for the business. But yeah, pretty rare stuff, and everything I see is small/internal.
It depends on the industry. DO is in the capex heavy industry so depreciation is not a funky accounting cost, it is actually something that's applicable to the vast majority of their assets.