Depreciation and Amortization

Non-cash expenses that allocate the carrying cost of tangible and finite-lived intangible assets across periods expected to benefit from their use.

Why It Matters

These charges affect operating profit, taxes, asset carrying values, EBITDA reconciliation, and comparisons between asset-heavy and asset-light firms. Their assumptions also provide information about useful lives, capital intensity, and whether current investment is sufficient to maintain productive capacity.

Reading the Measure

A working relation and an interpretive limit for corporate-finance use.

Interpretive caution

Adding depreciation and amortization back to earnings does not make asset use free. A firm may need substantial maintenance investment even though the current-period charge is non-cash.

Accounting reference: SEC: Beginners' Guide to Financial Statements