Amortization
How the Hemrock financial models calculate the purchase and sale of assets and amortization
How to use
The Standard Financial Model and Runway Tool share a core component on the Forecast sheet that handles amortization of other assets.
On Forecast, any line assigned as a purchase of other assets is summed into total new purchases for that period. The amortization period is set by Amortization, straight-line for N months on Get Started. Straight-line, one period across all assets in the category.
How it works
Amortization in the model works the same as depreciation — replace "Capital Expenditures" with "Purchase (Disposal) of Other Assets" and "Depreciation" with "Amortization".
Background
Amortization recognizes the cost of an intangible asset over its useful life (the matching principle). Applies to patents, trademarks, copyrights, and capitalized software. Typical periods: up to 20 years for patents, 3-5 years for software.
Goodwill arising from acquisitions is no longer amortized but tested annually for impairment.
Amortization is non-cash — it reduces net income on the income statement, reduces the asset's carrying amount on the balance sheet, and is added back in cash flow from operations.