Depreciation of Fixed Assets in The Context of Company Evaluation

This article explores how depreciation in financial accounting impacts a corporation's intrinsic worth and market value. To study this influence, the statistical development and simulation of the activities of various fictitious companies were conducted. The companies are identical, except for the depreciation strategy in financial accounting. It is demonstrated that the choice of depreciation technique influences the market value added when periodic depreciation exceeds investments in operating assets and the surplus amount is temporarily invested in highly liquid financial assets. In this situation, the company's value should be adjusted by the present value of lost profits caused by investing temporarily free funds in highly liquid financial assets instead of operation activity, on the one hand, and the present value of savings on capital transfer costs to the owners, on the other. If a positive net financial result is anticipated over the planning horizon, the first adjustment should be considered when selecting the depreciation method. It is calculated by the rate of return on temporary free capital invested in financial assets. Therefore, if the discount rate exceeds the rate of return on short-term financial support, the approach that provides the slowest amortization of non-current operational assets should be used in financial accounting.