RobertA

Thanks CP.

What also threw me off was "...earnings that are higher over many periods compared to an expensing firm..".

Your reasoning makes sense to me. Just so that I understand what you are saying allow me to illustrate:

Let's say a high flying firm capitalizes interest 3 times (in year 1, year 2 and year 3) with each having a duration of three years. In order to make sense of "...earnings that are higher over many periods compared to an expensing firm..", the earnings reported under this scenario will be higher for year 1, year 2, and year 3 - but lower if the firm were to expense the interest in each year. So if this continues for some time because of sales growth the earnings will certainly be higher for many periods (although if the firm were to expense the interests, the earnings would be higher in the later periods and eventually the total earnings would be exactly the same).

Is this a proper illustration?