What Is Amortization?

Amortization is the reduction of a debt or asset over a specific period of time. When referring to debt, amortization is simply the debt payment schedule. Amortization is found on the Income Statement and Cash Flow Statement and is used for loss of value on intangible assets. For assets the concept is similar to depreciation, except amortization is only applied to intangible assets (patents, contracts, trademarks) whereas depreciation is used for tangible assets (property, plants, equipment etc). An example of amortization of an intangible is if a company owns a patent for 10 years worth $20 million, it would be assumed that each year the value of the patent would decrease by $2 million so as to be worthless after expiry. Amortization is found both on the Income Statement and the Cash Flow Statement.

To learn more about this concept and become a master at valuation modeling, you should check out our Valuation Modeling Course. Learn more here.

Module 1: Introduction

Module 2: Valuation: The Big Picture

Module 3: Enterprise Value & Equity Value Practice

Module 4: Trading Comparables Introduction

Module 5: Trading Comps: The Setup

Module 6: Trading Comps: Spreading Nike (NKE)

Module 7: Trading Comps: Spreading Adidas (ADS.DE)

Module 8: Trading Comps: Spreading Lululemon (LULU)

Module 9: Trading Comps: Spreading Under Armour (UA)

Module 10: Trading Comps: Benchmarking and Outputs

Module 11: Precedent Transactions: Introduction

Module 12: Precedents: The Setup

Module 13: Spreading Tiffany & LVMH

Module 14: Spreading FitBit & Google

Module 15: Spreading Reebok & Adidas

Module 16: Spreading Jimmy Choo & Michael Kors

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Module 18: Valuation Wrap-Up

Module 19: Bonus: Non-GAAP Practice

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Related Terms

• Asset
• Cash Flow Statement (CFS)
• Debt
• Depreciation
• Earnings Before Interest, Taxation, Depreciation & Amortization (EBITDA)
• Earnings Before Interest, Taxation, Depreciation, Amortization & Rent (EBITDAR)
• Goodwill
• Intangible Assets
• Income Statement (IS)

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