Depreciation and Amortization

What about DA? DA stands for “depreciation and amor-

tization.” Depreciation refers to how physical assets, such as

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vehicles and equipment, lose value over time, and amorti-

zation refers to that same phenomenon but for intangible

assets. The reason to emphasize DA is because they are ex-

penses that are not associated with the outlay of cash; it is

just an approximation of the loss of value of an asset. Suppose

you build a factory. In accounting, you have to depreciate it

and charge yourself an expense for that depreciation. But in

finance, we emphasize cash and there was no cash outlay, so

EBITDA—or earnings before interest, taxes, depreciation,

and amortization—is a mea sure of the cash generated by op-

erations. Because DA was subtracted to arrive at EBIT, DA

needs to be added back to get to EBITDA.

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