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Glossary
Profit & cash

Amortisation

Depreciation, but for intangible assets like patents and software.

Mechanically identical to depreciation: the cost of an intangible asset is spread over its useful life. A twenty-year patent is amortised over twenty years.

It is frequently added back in 'adjusted' earnings, particularly by companies that grow through acquisition, since acquisitions create large intangibles. Whether that adjustment is fair depends on whether the intangible genuinely retains its value.

Figure

The divergence that precedes most disasters

Y1Y2Y3Y4Y5Reported profitOperating cash

Reported profit climbing while the cash it supposedly generated goes nowhere. Either customers are not paying, or the sales were never really made.

Why it matters

It is the A in EBITDA, and a favourite line for management to encourage you to ignore.

The mistake everyone makes

Accepting 'adjusted' earnings that exclude amortisation from acquisitions the company makes every single year.

Related terms

Depreciation
Spreading the cost of a physical asset over the years it is used.
Goodwill
The premium a company paid over the fair value of what it bought.
EBITDA
Profit before the four things that make companies look different from one another.

See Amortisation on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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