Financing from depreciation

Depreciation is basically used for reinvestment, i.e. the replacement of the depreciated item in question.
If the depreciation included in the sales price is reimbursed by the market, ie if they are “earned”, the necessary replacement can be procured from these amounts after a system has been used up. If, for example, a machine with a useful life of 10 years is purchased, the cost components calculated in the price are accumulated for reinvestment, but are only required at the time of replacement.

In the meantime, the company has growing cash and cash equivalents without any additional capital being raised. If these free depreciation proceeds are used to procure additional equipment, then there is financing from depreciation.

Dieser sogenannte „Kapazitätserweiterungseffekt” (Ruchti effect) lässt sich an einem vereinfachten Zahlenbeispiel aufzeigen
Example: A business beschafft in fünf aufeinander folgenden Jahren je eine Maschine im Wert von 1.000,00 Euro deren Nutzungsdauer fünf Jahre beträgt. Die lineare Abschreibung beträgt jährlich 200,00 Euro.

The first machine has to be replaced in the 6th year, the second in the 7th year, and so on. From the end of the 5th year onwards, the depreciation rate for each year corresponds exactly to the reinvestment amount of 1,000.00 euros. The depreciation amounts for the 1st to 4th year are not required for reinvestment, they are available for new acquisitions; it could buy two more machines without the need to raise capital from outside.

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