Glossarytaught in M1.04, M2.04
Non-cash charges
Also called non-cash expenses, non-cash items.
Costs that reduce reported profit without any money leaving the company in that period. Depreciation, amortisation, impairment, share-based compensation and provisions that have not yet been paid all belong here, and all get added back in the operating section of the cash flow statement.
A company with ₹380 crore of depreciation, ₹45 crore of share-based compensation and ₹30 crore of provisions adds back ₹455 crore.
It's tempting to treat every add-back as a benefit, and one of them isn't. Depreciation reflects plant that will need replacing, so ignoring it means ignoring a future cash cost. Share-based compensation is a real transfer of value to employees, paid in shares instead of cash, and adding it back to reach an adjusted profit figure assumes, without saying so, that the dilution is free.
Add back what took no cash. Don't add back what will.
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