In order to effectively demonstrate depreciation of a capital asset, Sal outlines the COGS for a company over four years, including a factory tooling cost required every two years. As he calculates the operating profit, learners see that the company, although turning a steady revenue, appears unstable. Sal uses this to explain why a statement incorporates depreciating tangible assets spread evenly over the years, illustrating it on company balance sheets. He also leads into the next video by contrasting depreciation with amortization.
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