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Amortization

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Definition of Amortization

Amortization Image 1

Amortization

Reduction in value of an asset over some period for accounting
purposes. Generally used with intangible assets. Depreciation is the term used
with fixed or tangible assets.


Amortization

See depreciation, but usually in relation to assets attached to leased property.


Amortization

The reduction of debt by regular payments of interest and principal sufficient to pay off a loan by maturity.


amortization

The repayment of a loan by installments.


Amortization

The repayment of a loan by installments.


Amortization

The systematic and rational allocation of capitalized costs over their useful lives.
Refer also to depreciation and depletion.



Amortization

The write-off of an asset over the period when the asset is used. This term
is most commonly applied to the gradual write-down of intangible items, such as
goodwill or organizational costs.


amortization

This term has two quite different meanings. First, it may
refer to the allocation to expense each period of the total cost of an
intangible asset (such as the cost of a patent purchased from the inventor)
over its useful economic life. In this sense amortization is equivalent
to depreciation, which allocates the cost of a tangible long-term operating
asset (such as a machine) over its useful economic life. Second, amortization
may refer to the gradual paydown of the principal amount of a debt.
Principal refers to the amount borrowed that has to be paid back to the
lender as opposed to interest that has to be paid for use of the principal.
Each period, a business may pay interest and also make a payment on
the principal of the loan, which reduces the principal amount of the loan,
of course. In this situation the loan is amortized, or gradually paid down.



Related Terms:

Amortization Image 2

Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.


Amortization factor

The pool factor implied by the scheduled amortization assuming no prepayemts.


Amortization Schedule

A schedule that shows precisely how a loan will be repaid. The schedule gives the required payment on each specific date and shows how much of it constitutes interest and how much constitutes repayments of principal.


Average Amortization Period

The average useful life of a company's collective amortizable asset base.


Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.


Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.


Extended Amortization Period

An amortization period that continues beyond a long-lived asset's economic useful life.


Extended Amortization Periods

Amortizing capitalized expenditures over estimated useful lives that are unduly optimistic.


Loan amortization schedule

The schedule for repaying the interest and principal on a loan.


Amortization Image 3

Negative amortization

A loan repayment schedule in which the outstanding principal balance of the loan
increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount
required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.


Planned amortization class CMO

1) One class of CMO that carries the most stable cash flows and the
lowest prepayement risk of any class of CMO. Because of that stable cash flow, it is considered the least risky CMO.
2) A CMO bond class that stipulates cash-flow contributions to a sinking fund. With the PAC,
principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined
payment schedule, with prior claim to the cash flows before other CMO classes. Similarly, cash flows
received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The
prepayment experience of the PAC is therefore very stable over a wide range of prepayment experience.



Adjusted EBITDA

Conventional earnings before interest, taxes, depreciation, and amortization (EBITDA) revised to exclude the effects of mainly nonrecurring items of revenue or gain and expense or loss.


Amortized Cost

Cost of a security adjusted for the amortization of any purchase premium or
discount.


Bullet loan

A bank term loan that calls for no amortization.


Cash flow

In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. Cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.


Depletion

The systematic and rational allocation of the cost of natural resources over their useful
lives. Refer also to amortization and depreciation.


Depreciation

Reduction in value of fixed or tangible assets over some period
for accounting purposes. See amortization.


Depreciation

The systematic and rational allocation of the cost of property, plant, and equipment
over their useful lives. Refer also to amortization and depletion.


Depreciation

amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life.


EBITA

Earnings before interest, taxes, and amortization expense.


EBITDA

Earnings before interest, taxes, depreciation, and amortization.



EBITDAR

Earnings before interest, taxes, deprecation, amortization, and rents.


Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is Funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.


Graduated-payment mortgages (GPMs)

A type of stepped-payment loan in which the borrower's payments
are initially lower than those on a comparable level-rate mortgage. The payments are gradually increased over
a predetermined period (usually 3,5, or 7 years) and then are fixed at a level-pay schedule which will be
higher than the level-pay amortization of a level-pay mortgage originated at the same time. The difference
between what the borrower actually pays and the amount required to fully amortize the mortgage is added to
the unpaid principal balance.


Noncash charge

A cost, such as depreciation, depletion, and amortization, that does not involve any cash outflow.


Purchase method

Accounting for an acquisition using market value for the consolidation of the two entities'
net assets on the balance sheet. Generally, depreciation/amortization will increase for this method compared
with pooling and will result in lower net income.


Reported factor

The pool factor as reported by the bond buyer for a given amortization period.



 

 

 

 

 

 

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