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Dorothy -

Your point about n/a is excellent. I may do another book, and I will follow your suggestion.

As for dispositions, I treat them as a source of cash. So you have gross capex, gross capex less dispositions, and then net dispositions.

You have to handle dispositions with some care, though. If capex averages $600 million a year, and dispositions $60 million, then just subtract the latter from the former.

But what if the company goes five years with no dispositions, and then in year 6 they reap $4 billion? How would you handle this? The source of cash is so big that it may dominate the defensive income statement. In this scenario I might depreciate dispositions over five years.

While on this subject, I also expense acquisitions. Management could have built the business from scratch, which would require investment in fixed and working capital. Instead, they decided the faster and cheaper route is via acquisition. This is fine. But acquisitions are a capital-equivalent, in mm mind. So I depreciate them over five years, beginning in the year the deal was made.

Good questions, Dorothy. Also, if You go back a year or so in this board you will find a link to an IETC spreadsheet that a reader has generously shared with us. Finally, send me your e-mail address at Hewitt.Heiserman@EarningsPower.com and I will send you a presentation I gave to Bryant College last spring.


Hewitt
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