Hidden underneath your cash flow statement, there exists a ticking time bomb called depreciation. Depreciation cost is the cost of accounting for the purchase of your long-term assets. Long term asset is defined as assets which can be used for more than one year such as: computers, furniture, vehicles, machinery on your plants and so forth. Meanwhile, assets with short life span are treated as expense for the current accounting period. This short term asset may include stationary, fuel purchase, rent and so forth.

It is important to differentiate between the two types of assets. Worldcom went into trouble for treating short-term expense as long-term assets. In the short-term, this accounting act will boost Worldcom's short-term profits and cash flow from operations. Dishonesty? Yes. Nowadays, companies find a less than obvious way of boosting their short-term profit. They do this by depreciating their assets in a very long long time. When you depreciate your assets for ten years instead of five years, you would cut your annual depreciation cost by half, which will boost your net income for the current year. As investors, you should be wary of companies stretching their depreciation cost to many many years. I do not endorse nor despise the examples presented underneath but it is your responsibility to check whether your investment carries this time-bomb depreciation cost..

Comcast Corp. (CMCSA). Most of you are probably familiar with this cable giant. Comcast is the dominant cable provider in the nation. For the fiscal year 2005, the company incur a $ 4.8 Billion of depreciation cost. How about long-term assets? The following are the list of depreciable assets:
Property Plant Equipment: $ 18.7 Billion
Goodwill: $ 14.2 Billion
Intangible Assets: $ 54.3 Billion

Total depreciable long term assets stood at $ 87.2 Billion in December 2005. At current pace, Comcast will finish depreciating its long term assets eighteen years from now! This assumes no new capital expenditure. The cold hard truth is that the companies spend $ 3.62 Billion of capital expenditure during the same period.

Cisco Systems Inc. (CSCO). This networking company was acquiring many small companies for the past decade. So, it is worth a look to see how fast it is depreciating its long term assets. Last fiscal year, the company recorded a $ 1.44 Billion of depreciation cost. Meanwhile, here are its depreciable long term assets:
Property Plant Equipment: $ 3.48 Billion
Goodwill: $ 9.19 Billion
Intangible Asset: $ 2.36 Billion

Total depreciable asset stood at $ 15.03 Billion. At the current rate, Cisco can depreciate these entire asset ten years from now, not as bad as Comcast.

Dow Chemical Co. (DOW). As one of the largest owner of chemical plants, Dow would take a long time to depreciate its long term assets, right? Wrong. For fiscal year 2005, Dow incurred a depreciation cost of $ 2.08 Billion. Meanwhile, its total depreciable long term assets are at $ 17.1 Billion. This gives it a 'mere' 8.2 years to depreciate all its assets. Dow assumes that the plant lifetime is around 8.2 years. This implies that even if Dow plant is still running ten years from now, it has already been expensed for and Dow can regard the plant cost as 'free'.

Intel Corp. (INTC). The world largest microprocessor company ran multiple plants around the world with significant investment dollars. Therefore, it is worth knowing how long it took to depreciate its assets. For fiscal year 2005, Intel incurred depreciation cost of $ 4.59 Billion while depreciable long term assets stood at $ 21.49 Billion. This implies that Intel will account all of its long term assets within ( $ 21.49 Billion / $ 4.59 Billion ) 4.68 years, a better ratio than the rest of the companies so far.

Earthlink Inc. (ELNK). This internet provider is second to AOL in terms of dial-up subscribers. For fiscal year 2005, it incurred a $ 47.1 Million of depreciation cost. Meanwhile, total depreciable long-term asset stood at $ 190 Million, giving Earthlink 4.03 years to fully depreciate its long term asset.

Comcast stretch its depreciation cost to 18 years while Intel and Earthlink took a mere four years to expense its long-term assets. Which one would you prefer? If these are identical companies, I would choose the shorter time period. Even companies with huge chemical plants such as Dow Chemical took only 8.2 years to fully depreciate its cost. Now, investors should be wary of companies stretching their depreciable assets. I do not discourage you from investing in Comcast here. Just want to remind you to do your homework. Another example would be Time Warner Inc. (TWX). It would take the company 15 years to depreciate all its long term assets. How about Tribune Co. (TRB)? It would take the company 45 long years to depreciate all of its long term assets. Be aware and do your own due diligence.