Quick Scoop: Amortization in EBITDA refers to the non-cash expense of spreading the cost of an intangible asset over its useful life, and EBITDA adds that expense back when measuring operating performance.

What it means

Amortization is used for things like patents, trademarks, copyrights, or other intangible assets that lose value over time. In EBITDA, the “A” stands for amortization, and it is included because EBITDA is designed to show earnings before non-cash accounting charges like depreciation and amortization.

Why it matters

  • It can make a company’s reported earnings look lower on the income statement because amortization is recorded as an expense.
  • It does not directly reduce cash the way loan payments do, which is why analysts often add it back when calculating EBITDA.
  • It matters a lot in valuation, especially for businesses with major intangible assets from acquisitions or intellectual property.

Simple example

If a company has net income of 100 and amortization expense of 20, EBITDA would typically add that 20 back, because EBITDA focuses on operating earnings before that non-cash charge.

Easy way to remember

  • Depreciation = for physical assets like machines or buildings.
  • Amortization = for intangible assets like patents or software rights.
  • EBITDA = adds both back to show operating performance more cleanly.

If you want, I can also explain EBITDA vs EBIT in one minute.