Comment by andrewlgood

Amortization/depreciation is actually pretty important for understanding the performance of a company. Imagine a firm buys a piece of software to run its business. In year 1 it pays $10M for the software then $1M per year in maintenance thereafter. The software enables the firm to make $2.5M Revenue in year 1 and ramp up to $3.5M thereafter. Assume no other expenses. Without amortization of the software expense, it would look like the business lost $7.5M in year 1, then made $2.5M per year for next 4 years. With amortization, the business makes $0.5M per year consistently which better reflects the stable nature of the business.

Note: ($10M / 5 years =2 m·$/year ). Year 1: $2.5M Revenue - $2.0M amort = $0.5M profit. Years 2-5 have $3.5M revenue - ($2.0M amort + $1M maintenance)= $0.5M profit.