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What is the selling price of physical assets? I would think Intel is not a reseller, so they don't buy and sell stuff but rather buy raw materials and then tran

• orwin 2y ago
  Let's say Company A buy a machine to engrave CPU 10 millions (no idea of the real cost), half of it with debt. In normal/traditional accounting, you put the selling price of the machine (if you have to liquidate the company) on the side of the asset: let's say 8 millions the first year, and 5 million on the debt side (they bought it with 5 million of investment money, leveraged with debt). Company has 8 millions in assets, 5 million in debt: good ratio, healthy company. Company B use future accounting: it buy the 10 million dollars machine. On the 'asset' side, you put 16 millions: the machine is worth 8, and is expected to earn the company a net profit of 8 during its lifetime. On the 'debt' side, you put 5. 16/5, the ratio is truly excellent. So good even that you can afford to take another 5 millions, and buy share/issue dividends. Now your asset/debt ratio is 16/10=8/5, same as Company A, except either your current shareholders have already reimbursed the initial investment, derisking themselves totally if the company ends up failing. I think you have a Republican primary candidate who used that with his drug company, the company failed to produce anything of value, but only late investors lost anything.