amortization

Examples of amortization in the following topics:

• Long-Term Loans

  • Over this period, the principal component of the loan (the original loan) is slowly paid down through amortization.
  • Term: Mortgage loans generally have a maximum term, or a number of years after which an amortizing loan will be repaid.
  • Some mortgage loans may have no amortization or require full repayment of any remaining balance at a certain date; others may have negative amortization.

• Capital Expenditures

  • The CAPEX costs are then amortized or depreciated over the life of the asset in question.
  • Costs that are capitalized, however, are amortized or depreciated over multiple years.

• Net Income

  • Net sales (revenue) – Cost of goods sold = Gross profit – SG&A expenses (combined costs of operating the company) = EBITDA – Depreciation & amortization = EBIT – Interest expense (cost of borrowing money) = EBT – Tax expense = Net income (EAT)

• Direct and Indirect Measurement

  • Operating items in the indirect method include depreciation and amortization, accounts receivable, inventory, and operating gains and losses.

• Debt Utilization Ratios

  • EBIT is earnings before interest and taxes, and EBITDA is earnings before interest, taxes, depreciation, and amortization.

• Employee Retirement Income Security Act

  • If a plan is not fully funded, the contribution also includes the amount necessary to amortize over seven years the difference between its liabilities and its assets.

• Short-Term Loans

  • Bridge loans typically have a higher interest rate, points and other costs that are amortized over a shorter period, as well as various fees and other "sweeteners" like equity participation by the lender.

• Sample Income Statement

  • 'Revenue' is money received from the sales of products and services before expenses are deducted, also called the 'top line. ' The net income is the result after all revenues and expenses have been accounted for, also known as the 'net profit' or the 'bottom line. ' The income statement displays the revenues recognized for a specified period and the expenses charged against these revenues, including write-offs (depreciation and amortization of assets) and taxes.

• Profit and Value

  • Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) equals sales revenue minus cost of goods sold and all expenses, except for interest, amortization, depreciation and taxes.