04-21-2014, 09:31 PM
(This post was last modified: 04-21-2014, 09:37 PM by earthtodan.)
Thanks for the response DW (weird, those are actually my initials). So to pull the main point that addresses my confusion, the purchase of a new fleet would not be counted against earnings for the quarter in which it was purchased? That's surprising because I keep hearing about EPS figures being thrown off by one-time capex. But it sounds like what you're saying is that only the balance sheet gets affected by a large expenditure, regardless of whether it's purchased with cash or debt.
I guess not all capex is spent on assets that depreciate. When SBUX had to pay a big legal settlement, or when CVA had to pay for unplanned repairs to a waste-to-energy facility, they didn't get anything for their money, and it couldn't be counted as depreciation in the future, so it had to be recognized immediately?
If say, BA hadn't signed a contract with the union in Washington and had built a new factory in Missouri instead, when would the cost of building the factory show up in earnings? Would it not show up in the earnings statements until it was finished, appraised, and started depreciating?
KMI declared a $0.42 dividend on $0.28 EPS, but from $0.55 of FCF available for distribution. If I look at FCF, it's well covered, but if I decide to ignore EBITDA and count depreciation as a real cost, then I should button my wallet, I'm told. However, then I feel like I'm counting the cost of pipelines twice, through depreciation (non-cash) and interest on debt (cash).
The question is relevant to offshore drillers because they have large fleets paid for with debt, and not all the same age. SDRL has levered up to buy a large fleet of $600m+ drillships, and therefore surely has a high non-cash depreciation expense. The depreciation expense would not be the same for all drillers. Diamond Offshore (DO) has the oldest fleet in the industry (and the lowest leverage), and therefore should have a lower depreciation expense. According to Finviz, SDRL is cheaper on a P/E basis than DO. However, I'm guessing that on an EBITDA basis SDRL might actually be more expensive than DO. A comparison of EV:EBITDA on Seeking Alpha strongly confirms this theory.
Again, thanks for the responses. I've never taken an economics or finance class, I'm just learning by investing.
I guess not all capex is spent on assets that depreciate. When SBUX had to pay a big legal settlement, or when CVA had to pay for unplanned repairs to a waste-to-energy facility, they didn't get anything for their money, and it couldn't be counted as depreciation in the future, so it had to be recognized immediately?
If say, BA hadn't signed a contract with the union in Washington and had built a new factory in Missouri instead, when would the cost of building the factory show up in earnings? Would it not show up in the earnings statements until it was finished, appraised, and started depreciating?
KMI declared a $0.42 dividend on $0.28 EPS, but from $0.55 of FCF available for distribution. If I look at FCF, it's well covered, but if I decide to ignore EBITDA and count depreciation as a real cost, then I should button my wallet, I'm told. However, then I feel like I'm counting the cost of pipelines twice, through depreciation (non-cash) and interest on debt (cash).
The question is relevant to offshore drillers because they have large fleets paid for with debt, and not all the same age. SDRL has levered up to buy a large fleet of $600m+ drillships, and therefore surely has a high non-cash depreciation expense. The depreciation expense would not be the same for all drillers. Diamond Offshore (DO) has the oldest fleet in the industry (and the lowest leverage), and therefore should have a lower depreciation expense. According to Finviz, SDRL is cheaper on a P/E basis than DO. However, I'm guessing that on an EBITDA basis SDRL might actually be more expensive than DO. A comparison of EV:EBITDA on Seeking Alpha strongly confirms this theory.
Again, thanks for the responses. I've never taken an economics or finance class, I'm just learning by investing.