Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Non-Cash Charge

What it is:

A non-cash charge is a write down or expense against earnings that does not involve cash.

How it works (Example):

A company will take a non-cash charge against non-cash items on the balance sheet, such as depreciation, amortization, and depletion.  These charges are typically made when something unusual happens, often outside the control of the company.  For example, a revision to an accounting or tax rule might cause a balance sheet asset to be written down.  A change in technologies rendering a piece of equipment obsolete or a legal ruling against the company on intellection property, or a unexpected acceleration in depreciation of an asset's market value may trigger non-cash charges.

Why it Matters:

A non-cash charge, as well as other types of write downs, will result in lower reported earnings.  Earnings performance is an important measure of a company's competitive position in the equity markets.  As a result, a write-down may affect a company's stock price.
 

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