When is the investment fully paid back?
This is important because of financing activities. When getting a loan from a bank it is important to know how long the payment terms will be. It is easier to get a loan for 5 years than for 10.
Amortization = Assets Costs / (Profit + Depreciation)
Depreciation is added to the profit because the cash has never left the company. It is present in the financial reporting but the bank accounts stay untouched → see here
Dynamic Amortization
more on https://www.investopedia.com/terms/a/amortization.asp
- basically, taking interest payments into account when calculating a loan
- a loan is never just the money you borrowed, but also interest payments on the remaining balance
- neutral amortization … monthly loan repayments = interest costs
- loan will never go away
- positive amortization … monthly > interest
- loan will decline, faster with every month since the interest decreases
- negative amortization … monthly < interest
- loan will only increase in size, as the interest keeps costing more than the monthly repayments provide