Glossary - Amortization
Amortization refers to the process of spreading out a loan into a series of fixed payments over time. Each payment is partially for the interest and partially for the principal balance. In accounting, it also refers to the practice of gradually writing off the initial cost of an intangible asset over the useful life of the asset.
Also known as
- Depreciation (for tangible assets)
Use cases examples
- Loan Agreement: The principal amount of the Loan shall be amortized in equal quarterly installments over a five-year period, commencing one year from the loan disbursement date.
- Financial Statements: The company reported an amortization expense of $10,000 for the fiscal year, reflecting the systematic reduction of its intangible asset costs.
Considerations for investors
- Evaluate the impact of loan amortization schedules on a company's liquidity and long-term financial health when assessing potential investments.
- Consider the effects of amortization expenses on a company's reported earnings and how this may influence its valuation.
Considerations for founders
- Understand how amortization of loans can impact cash flow and financial planning, especially in terms of meeting regular payment obligations.
- Be aware of the taxation implications of amortizing intangible assets and how this affects company profits.
Get to know our world class tools and services
Transform your operations with world class tools
We have created several tools to help investors spot the best opportunities and manage their portfolio.
Let's unlock your business potential with Automations
Embrace the future with our tailored subscription service that combines strategic planning and practical implementation.