What is a Non-Cash Charge?
How Does a Non-Cash Charge Work?
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 Does a Non-Cash Charge Matter?
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.