Some people add back depreciation to net income, and then deduct capital expenditure from the net income, to reach what they consider the "true cash flow" or earning power of the company.
What is the reason for that?
Is it because capital expenditure is like, "have to spend the cash, but cannot deduct it from revenue except for its current year's depreciation" (and it doesn't affect the net income except for the current year's depreciation portion), so the net income is "inflated" and therefore we have to deduct it from the net income?
And depreciation is like, "don't have to spend the cash for this depreciation amount", but can be subtracted from the net income (as cost), so the net income is "deflated" and therefore, we need to add the depreciation back to the net income?
Essentially, then, it is to completely negate the usage and effect of "depreciation" -- as if companies don't depreciate but take the whole cost each year "as is"?