´´ Benjamin Graham on Depreciation

Sunday, December 2, 2012

Benjamin Graham on Depreciation

"In some very rare cases the depreciation charges are excessive, either because too high rates are used, or becasue the base values are far above replacement costs."

"...making excessive or insufficient allowances for these items the net earnings may readily be under- or overstated."

"In the case of public utilities the depreciation allowance is of major importance."

"While the depreciation charge is properly  a certain percentage of the plant account, it usually is more convenient to study it in relation to gross earnings. In most cases a suitable depreciation charge appears to be between 8% and 12% of gross."

"In the nonextractive industries ... 80 concernc showed depreciation and obsolence charges in 1933 averaging 4,5% of the net property plant. Thirty-seven companies engaged in reatil trade showed in 1933 depreciation and obsolence charges averaging 5,2% of the net property value.
As a general rule, about 5% of the net property value may be taken as an adequate annual depreciation charge."








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