CompanyGraph
Use to find companies where this pattern is active.
Three line-item observations split: operating income increased year-over-year over the trailing four years while gross profit decreased year-over-year over the trailing four years, and depreciation is large relative to operating cash flow (industry-benchmarked). The operating-income gain is occurring below the gross-profit line, alongside a depreciation-heavy cash-flow bridge.
State
Operating income increased year-over-year while gross profit decreased year-over-year and depreciation is large relative to operating cash flow
Emergence
Three line-item directional observations split. Operating income has increased year-over-year over the trailing four years while gross profit has decreased year-over-year over the trailing four years, AND depreciation is large relative to operating cash flow (industry-benchmarked). The composition note: the operating-income gain is happening somewhere below the gross-profit line (overhead, depreciation, taxes, one-offs), while the cash-flow bridge from earnings to cash includes a meaningful depreciation share. Whether the gap between op-income and gross-profit reflects cost capitalization specifically is not directly observed.
Limits
This interpretation identifies a composition pattern between operating-income trajectory, gross-profit trajectory, and depreciation share of operating cash flow, not a verified cost-capitalization mechanism. It does not claim accounting manipulation, predict reversal, or assess whether depreciation policy is appropriate.
Screen for Rising Operating Income With Falling Gross Profit and Heavy Depreciation
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Explanation
This diagnostic clarifies a composition reading: Surface reading: Rising operating income suggests the business is becoming more profitable. Structural reality: Operating Income Increased Year-Over-Year (4 years) indicates operating income has risen consistently. However, Gross Profit Decreased Year-Over-Year (4 years) (under 'gross-profit-decreased-yoy-4y') indicates gross profit has fallen — so the operating-income gain is occurring below the gross-profit line. And Depreciation Intensity (industry-benchmarked Depreciation/OCF) is high — depreciation is a meaningful share of operating cash flow relative to industry peers. The combination shows operating-income growth despite gross-profit decline, with a depreciation-heavy bridge from earnings to cash. The 'cost capitalization' story is one plausible explanation but is not directly observed; depreciation can also be high for reasons unrelated to capitalization (aging asset base, capital-intensive industry, recent acquisitions).
Interpretation
This interpretation identifies a composition pattern between three line-item observations, not a verified accounting mechanism. It does not claim improper accounting, predict margin compression, or recommend action.
Required Observations
Depreciation Intensity
Depreciation is a larger share of operating cash flow than for most companies in the industry.
Gross Profit Decreased Year-Over-Year (4 years)
Gross profit has decreased year-over-year across the most recent 4 fiscal years.
Operating Income Increased Year-Over-Year (4 years)
Operating income increased year-over-year in each of the last four fiscal years.