Amortisation
This article explains how amortisation works in Model Reef.
You will learn:
What amortisation represents in the model.
How it is generated from asset like variables.
How it affects P&L, Balance Sheet and Cashflow.
Amortisation is conceptually similar to depreciation but usually applies to intangible or deferred items.
What amortisation represents
In Model Reef, amortisation is typically used for:
Intangible assets such as capitalised development costs or licences.
Deferred costs that are expensed over time rather than immediately.
These items are usually represented using Asset type variables with appropriate categories, such as Assets - Intangibles.
Amortisation in the P&L
In the P&L:
Amortisation is shown alongside depreciation below EBITDA and above EBIT.
It reduces EBIT but not EBITDA.
It is a non cash expense, just like depreciation.
Whether depreciation and amortisation appear as a single combined line or separate lines depends on your chosen reporting layout and categories.
Amortisation in the Balance Sheet
In the Balance Sheet:
Intangible or deferred assets are recorded via Asset variables.
Amortisation reduces the carrying amount of these assets over their useful life.
Model Reef tracks the resulting net balance in the relevant asset categories.
The underlying logic is the same as depreciation, but the assets being amortised are usually not physical.
Amortisation in Cashflow and valuation
In the Cashflow Statement:
Amortisation, like depreciation, does not appear as a cashflow.
The initial cost appears as capex or an investing cash outflow when incurred.
In valuation:
Amortisation is added back when computing free cashflow, because it is non cash.
The impact of these assets on value is captured through their associated capex and any tax effects.
Amortisation therefore shapes reported earnings but not cash directly.
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