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• Research and development expenses are capitalized and amortized rather than expensed (R&D expense is added back to earnings to compute NOPAT).• In the case of strategic investments that are not expected to generate a return immediately, a charge for capital is suspended until a later date.• Goodwill is capitalized and not amortized (amortization expense is added back in arriving at NOPAT, and accumulated amortization is added back to capital).• Deferred taxes are eliminated such that only cash taxes are treated as an expense.• Any inventory LIFO reserve is added back to capital, and any increase in the LIFO reserve is added in arriving at NOPAT.• Operating leases are treated as capital leases, and nonrecurring items are adjusted.
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