Depreciation

Depreciation is a non-cash charge — no money leaves the company in the year it is booked — but it is not a fictional one, because the asset really is wearing out and will need replacing. Management chooses useful lives and methods within regulatory limits, so extending an asset's assumed life raises reported profit without changing anything real. The written-down-value method front-loads the charge while the straight-line method spreads it evenly, producing different profits in early years for identical assets. Treating depreciation as an accounting nuisance to be added back is the central error behind over-reliance on EBITDA.