Finance and accounting
Depreciation and amortization
Spreading the cost of a long-lived asset over its useful life.
Facts checked against sources onWhat does Depreciation and amortization mean?
Depreciation spreads the cost of a physical asset, such as a machine, over the years it is used. Amortization does the same for intangible assets, such as software or patents. A machine costing 100,000 that lasts 10 years might be depreciated by 10,000 a year. It is a cost in the income statement but not a cash payment in that year.
Where does it come up in case interview prep?
- Cost structures, margins and capital intensity across industriesLesson in How industries work: the toolkit
- The profit and loss statement, line by lineLesson in Business basics for non-business learners
- A light balance sheet, and why profit is not cashLesson in Business basics for non-business learners
- How the three statements link: one company through all threeLesson in Reading a business through its numbers: the three statements, cash and value
- The cash flow statement, and why profit is not cashLesson in Reading a business through its numbers: the three statements, cash and value
- EBITDA versus operating profit versus free cash flowLesson in Reading a business through its numbers: the three statements, cash and value
- Profit and lossLesson
- Subscriber and content economicsLesson in Media, streaming, gaming, and advertising
Related terms
- Capex (capital expenditure)Spending on long-lived assets such as machines and buildings.
- EBITDAEarnings before interest, taxes, depreciation and amortization.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Variable costA cost that rises and falls with how much you make.
- Semi-variable costA cost with a fixed part and a part that moves with volume.
Learn it in context
See Depreciation and amortization at work in a lesson from How industries work: the toolkit, with checks as you go.
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