Definition
Amortization applies to intangible assets (patents, software) similar to how depreciation applies to tangible assets. It also refers to the scheduled reduction of loan principal through periodic payments. Like depreciation, it's a non-cash expense for intangibles.
Formula
Amortization = Asset Cost / Useful Life (for intangibles)
Example
A $50M patent with 10-year life is amortized at $5M annually. Acquired software worth $10M with 5-year life is amortized at $2M per year.
FAQ
What is Amortization?
The gradual expensing of intangible assets or loan principal over time.
How do you calculate Amortization?
A common formula for Amortization is: Amortization = Asset Cost / Useful Life (for intangibles)
Why is Amortization important?
Amortization helps investors evaluate fundamental analysis and make more informed decisions.