Amortization

Also known as: Amortization

Unter einer Amortisation versteht man einen Prozess, bei dem getätigte Investitionen durch die aus ihnen erzielten Erträge gedeckt werden. Eine Anschaffung hat sich also dann amortisiert, wenn die durch diese Anschaffung erwirtschafteten Erlöse genauso hoch sind wie die ursprünglichen acquisition cost.

Definition / explanation

The term amortization is used in economics to describe the return on investment. A company can only make a profit from the point in time at which an investment has paid for itself.

Im Vorfeld der Entscheidungsfindung (für oder gegen eine Anschaffung) wird eine sogenannte Amortization calculation durchgeführt, um zu kalkulieren, ob eine bestimmte Investition sich lohnt.

What is the payback period?

The length of time until the investments made are fully covered is described as the payback period. How long the amortization period is is determined with the help of the amortization calculation mentioned above.

Payback period (in years) = capital / income (per year)

This calculation is carried out either statically, i.e. without taking any interest income into account, or dynamically, taking them into account:

Static amortization calculation

With the static amortization calculation, one considers the costs of the acquisition on the one hand and the time required to cover the costs of the acquisitions on the other hand. The usual formula for this calculation is: Payback period in years = purchase price / profit per year.

Dynamic amortization calculation

This calculation determines when a purchase has amortized, taking into account the interest to be paid or the interest income. The formula must be expanded to include the average profit after depreciation and imputed interest.

Payback period (in years) = acquisition cost / average profit

Summary

• the amortization refers to the coverage of investment costs with the income from the investment
• the amortization period describes the period within which the investment has amortized
• there is a static and a dynamic amortization calculation
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