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The Daily Technical #107: Why would it be incorrect to use enterprise value and net income in a multiple?

How to answer "Which types of intangible assets are amortized?"

February 06, 2025

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OVERVIEW OF YESTERDAY’S QUESTION
Which types of intangible assets are amortized?

Amortization is based on the same accounting concept as depreciation, except it applies to intangible assets rather than fixed tangible assets such as PP&E.

Intangible assets include customer lists, copyrights, trademarks, and patents, which all have a finite life and are thus amortized over their useful life.

Common Mistakes

  1. Mistakenly thinking amortization applies to both tangible and intangible assets. Remember, depreciation is for tangible assets like machinery; amortization is for intangible ones like patents. Always differentiate between the two concepts.

    2. Assuming all intangible assets are amortized. Only intangibles with a finite life, such as customer lists and copyrights, are amortized. Ensure you identify whether an intangible asset has a finite or indefinite life before discussing amortization.

TL;DR

  • Amortization mirrors depreciation but applies to intangibles.

  • Customer lists, copyrights, trademarks, and patents are examples.

  • Intangible assets with finite lifespans are amortized.

  • Amortize over the asset's useful life.

TODAY’S QUESTION
Why would it be incorrect to use enterprise value and net income in a multiple?

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