am·​or·​ti·​za·​tion | \ ˌa-mər-tə-ˈzā-shən also ə-ˌmȯr- How to pronounce amortization (audio) \

Definition of amortization

1 : the act or process of amortizing
2 : the result of amortizing

Examples of amortization in a Sentence

Recent Examples on the Web

Adjusted earnings before interest, taxes, depreciation and amortization—which excludes impairment charges—was $1.24 billion in the first quarter, up 33% from a year ago. Costas Paris, WSJ, "Maersk Swings to Loss, Warns Trade Tensions Hitting Shipping Demand," 24 May 2019 For example, the proliferation of using pro forma earnings or adjusted Ebitda (earnings before interest, taxes, depreciation and amortization)... WSJ, "Uber and Lyft Highlight Overflexible Accounting Ill—GAAP Vs. non-GAAP," 9 May 2019 The company’s leverage--measured by the ratio of net debt to earnings before interest, taxes, depreciation and amortization--is relatively low at 2.3 times, compared with the industry average of above 3.0 times, Mr. Feeney said. Nina Trentmann, WSJ, "Hershey Names New CFO as It Transforms Its Business," 18 Apr. 2019 The credit ratings firm predicts aggregated adjusted earnings before interest, taxes, depreciation and amortization would fall by 15% for six major European auto manufacturers. Nina Trentmann, WSJ, "Higher U.S. Import Tariffs Could Dent Earnings, Credit Ratings at European Car Makers, S&P Says," 26 Mar. 2019 By the end of the year, the company’s EBITA (earnings before interest, taxes and amortization) are expected to grow around 20 percent. Billboard Staff, Billboard, "No. 2: Lucian Grainge | Power 100," 25 Jan. 2018 The company now expects adjusted earnings before interest, tax, depreciation and amortization in the range of $350 to $400 million for fiscal 2019—a sharp drop from Wall Street expectations. Elizabeth Winkler, WSJ, "Toys ‘R’ Dust: Mattel’s Bizarre Warning," 15 Feb. 2019 The index, which was created in 2012, focuses on financial performance during the first two months of each quarter and measures earnings before interest, tax, depreciation and amortization. Nina Trentmann, WSJ, "Small Private Firms See Surge in Fourth-Quarter Earnings," 11 Jan. 2019 The San Francisco firm typically backs businesses with revenue of $25 million to $250 million or more and earnings before interest, taxes, depreciation and amortization of $5 million to $25 million or more. WSJ, "Svoboda Capital Sells Infinite Packaging to Main Post’s Fortis Solutions," 2 Jan. 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'amortization.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of amortization

1851, in the meaning defined at sense 1

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Last Updated

29 May 2019

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The first known use of amortization was in 1851

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Financial Definition of amortization

What It Is

Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time.

How It Works

Let's assume Company XYZ owns the patent on a piece of technology, and that patent lasts 15 years. If the company spent $15 million to develop the technology, then it would record $1 million each year for 15 years as amortization expense on its income statement.

Alternatively, let's assume Company XYZ has a $10 million loan outstanding. If Company XYZ repays $500,000 of that principal every year, we would say that $500,000 of the loan has amortized each year.

Why It Matters

The length of time over which various intangible assets are amortized vary widely, from a few years to as many as 40 years.  As a general rule, an asset should be amortized over its estimated useful life, or the maturity or loan period in the case of a bond or a loan.  If an intangible asset has an indefinite life, such as goodwill, it cannot be amortized.

It is important to note that the term amortization refers to intangible assets; the term depreciation refers to tangible assets, and the term depletion refers to natural resources.

Source: Investing Answers

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