They're usable over two years.

So I'll just write down the number first.

Really, in my mind, it's very similar to depreciation.

So therefore, I put it down there.

Well, you know depreciation, man.

To figure out the cash from operations from actually how much cash the operations are producing.

So no cash went out of the door.

And then their SG amp A is the same.

And then at the end of 2010, it'll say the machine is worth nothing.

And then instead of having an equipment expense, instead of having that expense, they'll have an equipment depreciation expense.

So, for example, in this one, at the beginning of the period, before the 2007 income statement, the asset was worth 50,000.

If you divide 50,000 by 4, it's 12,500.

No, we didn't.

And amortizing really just means spreading out the cost of this asset, just like depreciation was spreading out the cost of a physical asset.

So 20,000 over 3 years is the life of that truck.

Our profit, once again, is 30,000.

So I used half of it in year one.

Thank you.

So for example, depreciation, this was factory equipment, and it gets old as I use it, so I spread out its cost.

So it actually computes what we need it to compute.

amortization. Amortization is to spread out a non tangible cost over a period of time.

Accounts Receivable, that they're not changing over the course of the year.

And then the other 250,000 essentially went to an expense called depreciation, which is right there.

So the way you'd think about this is instead of having factory retooling, you could say factory tool.

Nothing fancy.

Redemption

And we'll talk later about depreciation and amortization and how we might change what these values are, but a very simple way is, if you went out and bought 10 million worth of stuff, you'd write on your books, I have a 10 million asset.

So I asked the Minister over dinner,

Anyway, going back to Price to Earnings, we calculated the

And let's say we do a straight line depreciation, which means we essentially depreciate the asset evenly over its lifespan.

Do you have any idea what that school is costing me?

Let me tell you about a truly magical algorithm called value iteration.

Our starting cash was 50,000, we had 50,000 from operations, now our ending cash is 100,000.

And we see that the last trade here was for 2.58.

And then we have depreciation, and we want to think a little bit in this video, what does the depreciation do to the cash flow statement?

So that's where it comes from.

Alright?

And the answer is no, it isn't. It is somewhat inconsistent.

Another choice would be to calculate the ratio between the weight and how much its worth.

The fact that this machine right here that cost 50,000 is used for in this example, in the depreciation video, it was usable for two years.

I'll give you some examples.

And this is just an arguably long winded way of saying that the way you account for this is you spread out the cost over time, over its useful life, and this spreading out is called the depreciation of an asset.

So when you evaluate it at infinity, when you evaluate this at infinity, you're going to get 0.

Now either one of these is legititmate ways of accounting but its good to know the difference

The only way to find its outcome is, effectively, just to watch it evolve.