Pre-Depreciation Profit

AAA

DEFINITION of 'Pre-Depreciation Profit'

Earnings that are calculated prior to non-cash expenses. Non-cash expenses appear as separate income statement expense line items, but no actual cash is spent on these items. Depreciation costs are generally allocated according to a certain rate or percentage, depending on the depreciation method used.

INVESTOPEDIA EXPLAINS 'Pre-Depreciation Profit'

Pre-depreciation profit is calculated because it provides a cleaner number that can help determine a company's ability to service debt.

Non-expense items lower a company's reported earnings, so a pre-depreciation profit would show a higher profit in comparison to profits calculated after depreciation. Depreciable items include buildings, machinery, furniture, vehicles and equipment.

RELATED TERMS
  1. Earnings Before Interest & Tax ...

    An indicator of a company's profitability, calculated as revenue ...
  2. Earnings Before Interest, Depreciation, ...

    An earnings metric used in the evaluation of oil, gas and mineral ...
  3. Earnings Before Interest, Depreciation ...

    A measure of the earnings of a company that adds the interest ...
  4. Mobile First Strategy

    Mobile first strategy is trend in website development where designing ...
  5. Convention Statement

    A document filed by an insurance or reinsurance company that ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
RELATED FAQS
  1. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  2. How can the first-in, first-out (FIFO) method be used to minimize taxes?

    The first-in, first-out (FIFO) inventory cost method can be used to minimize taxes during periods of rising prices, since ... Read Full Answer >>
  3. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
  4. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  5. How are prepaid expenses recorded on an income statement?

    Prepaid expenses are not recorded on an income statement. When the prepaid expense becomes due, the expense is recognized ... Read Full Answer >>
  6. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
Related Articles
  1. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Markets

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  3. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  4. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  5. Options & Futures

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  6. Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  7. Economics

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  8. Investing

    What is Comprehensive Income?

    Comprehensive income is a part of the owners’ equity section of the balance sheet.
  9. Economics

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  10. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center