HP (HPQ) Depreciation, Depletion and Amortization

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HP Depreciation, Depletion and Amortization Calculation

Depreciation is a present expense that accounts for the past cost of an asset that is now providing benefits.

Depletion and amortization are synonyms for depreciation.

Generally:
The term depreciation is used when discussing man made tangible assets
The term depletion is used when discussing natural tangible assets
The term amortization is used when discussing intangible assets

Depreciation, Depletion and Amortization for the trailing twelve months (TTM) ended in Jan. 2024 adds up the quarterly data reported by the company within the most recent 12 months, which was $846 Mil.

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

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HP  (NYSE:HPQ) Depreciation, Depletion and Amortization Explanation

One of the key tenets of Generally Accepted Accounting Principles (GAAP) is the matching principle. The matching principle states that companies should report associated costs and benefits at the same time.

For example:

If a company buys a $300 million cruise ship in 1982 and then sells tickets to passengers for the next 30 years, the company should not report a $300 million expense in 1982 and then ticket sales for 1982 through 2012. Instead, the company should spread the purchase price of the ship (the cost) over the same time period it sells tickets (the benefit).

To create income statements that meet the matching principle, accountants use an expense called depreciation.

So, instead of reporting a $300 million purchase expense in 1982, the company might:

Report a $30 million depreciation expense in 1982, 1983, 1984...and every year after that for the 30 years the company expects to sell tickets to passengers on this cruise ship.

To calculate depreciation, a company must make estimates and choices such as:

The cost of the asset
The useful life of the asset
The salvage value of the asset at the end of its useful life
And a way of spreading the cost of the asset to match the time when the asset provides benefits

The range of different ways of spreading the cost under GAAP accounting is too long to list. However, public companies in the United States explain their depreciation choices to shareholders in a note to their financial statements. It is critical that investors read this note. Investors can find this note in the company's 10-K.

Past depreciation expenses accumulate on the balance sheet. Most public companies choose not to show this contra asset account on the balance sheet they present to shareholders. Instead, they simply show a single item. This single asset item may be marked Net. Such as Property, Plant, and Equipment - Net. It is actually the asset account netted against the contra asset account.

A contra asset account is an account that offsets an asset account. So, for example a company might have:

Property, Plant, and Equipment - Gross: $150 million
Accumulated Depreciation: $120 million
Property, Plant, and Equipment - Net: $30 million

In this case, the only item likely to be shown on the balance sheet is Property, Plant, and Equipment - Net. This is the cost of the company's property, plant, and equipment (asset account) minus the accumulated depreciation (the contra asset account). It means the company's assets cost $150 million, the company has reported $120 million in depreciation expense over the years, and the company is now reporting the assets have a book value of $30 million.

It is possible for a company to have fully depreciated assets on its balance sheet. This means the company's estimate of the useful life of the asset was shorter than the asset's actual useful life. As a result, the asset - although it is still being used - is carried on the balance sheet at its salvage value.

This is a reminder that depreciation involves estimates and choices. It is not an infallible process.

Companies do not have cash layout for depreciation. Therefore, depreciation is added back in the cash flow statement.

Although depreciation is not a cash cost, it is a real business cost because the company has to pay for the fixed assets when it purchases them. Both Warren Buffett and Charlie Munger hate the idea of EDITDA because depreciation is not included as an expense. Warren Buffett even jokingly said We prefer earnings before everything when criticizing the abuse of EDITDA.

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Be Aware

Depreciation estimates make the calculation of net income susceptible to management's accounting choices. These choices can be either overly aggressive or overly conservative.

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HP Depreciation, Depletion and Amortization Related Terms

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Operating Income Operating Margin % EBITDA

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HP (HPQ) Business Description

Executives

Enrique Lores	officer: President, PSS	3000 HANOVER STREET, PALO ALTO CA 94304
Alex Cho	officer: President, Personal Systems	HP, 1501 PAGE MILL ROAD, PALO ALTO CA 94304
David W Meline	director	3M COMPANY, 3M OFFICE OF GENERAL COUNSEL, ST PAUL MN 55144-1000
Berkshire Hathaway Inc	10 percent owner	3555 FARNAM STREET, OMAHA NE 68131
Marie Myers	officer: Global Controller, HFS & PAO	3000 HANOVER STREET, PALO ALTO CA 94304
Subra Suresh	director	HP, 1501 PAGE MILL RD BLDG 5, PALO ALTO CA 94036
David P. Mcquarrie	officer: Chief Commercial Officer	C/O HP INC., 1501 PAGE MILL RD, PALO ALTO CA 94304
Shumeet Banerji	director	C/O HEWLETT-PACKARD COMPANY, 3000 HANOVER STREET, PALO ALTO CA 94304
Jonathan P Faust	officer: Global Controller	C/O HP INC, 1501 PAGE MILL ROAD, PALO ALTO CA 94304
Tuan Tran	officer: Pres Imaging Prtng & Solutions	1501 PAGE MILL ROAD, PALO ALTO CA 94304
Julie M Jacobs	officer: Chief Legal Officer and GC	22000 AOL WAY, DULLES VA 20166
Kristen M Ludgate	officer: Chief People Officer	3M COMPANY OFFICE OF GENERAL COUNSEL, 3M CENTER, ST. PAUL MN 55144-1000
Rucker Kim K.w.	director	KRAFT FOODS GROUP, INC., THREE LAKES DRIVE, NORTHFIELD IL 60093
Richard L Clemmer	director	P O BOX 34552, LAS VEGAS NV 89129
Judith A Miscik	director	300 RENAISSANCE CENTER, M/C: 482-C24-A68, DETROIT MI 48265