Impact of depreciation

The life expectancy of capital assets is often in the eye of the beholder. Take Imperial Oil and Suncor Energy, for instance. Both compete in the oil industry, yet their refineries’ life expectancies are quite different. Imperial amortizes its refineries over 25 years, but Suncor amortizes its refineries over an average of 32 years. Such differences can dramatically impact their financial statement numbers. What adjustments and assumptions (if any) are appropriate when using comps (ratios) to compare companies in instance like these?

comparing refineries of two oil companies requires knowledge of their construction, and the logic behind why each company thinks their assets will last a particular amount of time. refineries are massively complex, and wrapping your head around the details may require talking to an engineer to fully understand. if you get a consult and the results show that one company may be more pessimistic or optimistic than warranted about useful lives, you could adjust depreciation expense up or down in your model accordingly. my $0.02 anyways…