Guide to Analysing Companies


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FINANCE Essencial finance

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104
DEPRECIATION
01 Essential Finance 10/11/06 2:21 PM Page 104


account of the fact (ignored by other methods) that the
cost of replacing the asset will usually be greater (if only
because of inflation) than its original cost. An amount
adjusted for the rate of inflation during the year is set
aside out of profit each year.
All these methods ignore the fact that in a fast-changing tech-
nological world most assets are unlikely to be replaced with any-
thing like themselves. In some cases (with computers or
telecommunications, for instance) the cost of replacement may be
considerably less than the original cost, inflation notwithstanding.
Deregulation
The process of removing legal or quasi-legal restrictions on the
types of business done, or on the price charged, within a partic-
ular industry. The aim of most deregulation is to boost competi-
tion by increasing the freedom of players within the industry. In
recent years, industries such as airlines, banking, stockbroking
and telecommunications have been deregulated around the
world. In the United States, the removal of interest-rate ceil-
ings (called Regulation Q) was one example of price deregula-
tion. In the UK, the introduction of dual capacity in the
stockmarket was an example of non-price deregulation.
Governments aim to strike the right balance. Regulation, after
all, is often there to protect consumers. For example, if airlines
are allowed to compete too fiercely, safety standards may fall
with fatal consequences. Likewise, if banks compete too
fiercely, their deposits may be put at risk. Sometimes (as many
believe happened in the US energy market) the pendulum
swings too far towards deregulation. The abuse of free markets
by Enron, an energy trader that went spectacularly bust in 2001,
caused regulators to reconsider tightening the rules.

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