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The book value is the gross investment (that is, the original or historical purchase price) minus the accumulated depreciation expense. Book value is also called net value, meaning 'net of depreciation'. In Motorola's case, the gross asset value is dropping (which indicates asset dispositions) and so is the book value. Motorola has disposed of assets without a commensurate investment in new assets. Put another way, Motorola's asset base is aging.
Notice the effect on depreciation expense: it drops significantly, from $2 billion to $1.5 billion in 2003. In Motorola's case, depreciation is buried in cost of goods sold (COGS), but the temporary impact is a direct boost in pre-tax profits of half a billion dollars. To summarize, an aging asset base--the result of the company disposing of some old assets but not buying new ones--can temporarily boost profits. When assets are aged to inflate reported profits, it is sometimes called "harvesting the assets."
We can directly estimate the age of the fixed asset base with two measures: average age in percentage terms and average age in years. Average age in percentage equals accumulated depreciation divided by the gross investment. It represents the proportion of the assets that have been depreciated: the closer to 100%, the older the asset base. Average age in years equals accumulated depreciation divided by the annual depreciation expense. It is a rough estimate of the age of the in-place asset base. Below, we calculated each for Motorola. As you can see, these measures show that the asset base is aging.
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