Depreciation

The spreading of a physical asset's cost across the years it is used. It is an allocation, not a valuation, and it is not a cash payment in the year it is charged.

A cement plant costing ₹2,400 crore with an expected residual value of ₹240 crore and an eighteen-year life carries a straight-line charge of ₹120 crore a year.

Two companies with identical plants can report different profits because one assumes an eighteen-year life and the other twenty-five. The useful-life table sits in the notes and is worth two minutes.

The measure that keeps analysts honest is depreciation against capital expenditure over a full cycle. A company spending far less on new assets than it charges as depreciation is shrinking its asset base, whatever the revenue line says, and a company spending far more is either growing or replacing plant it under-depreciated for years.