High dividend stocks – AGNC analysis of the income account> extraordinary losses> idle-plant expense

American Capital Agency Corp. (AGNC) does not own any plant equipment; therefore, they have no idle-plant expenses.  No adjustment to the income account is necessary for this category of analysis.  Learn more about how idle-plant expense accounting can effect earnings by reading the section below.

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The cost of carrying non-operating properties should almost always be charged against income account.  Idle-plant expenses are of a different nature than ordinary charges against income.  The idle-plant expenses should be of a temporary and therefore non-recurring type.  The company’s management can terminate the losses at any time by disposing of or abandoning the property.  If, for the time being, the company elects to spend money to carry these assets along in the expectation that future value will justify the outlay, it does not seem logical to consider these assets as equivalent to a permanent liability, i.e., as a permanent drag upon the company’s earning power, which makes the stock worth considerably less than it would be if these “assets” did not exist.

Some companies in the past had charged their idle-plant expenses to their surplus.  That relieved their reported earnings of expenditures that most companies charge against income.  They should have charged to their income account.

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Published in: on September 14, 2010 at 10:10 pm  Leave a Comment  

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