26 December, 2013

1-5-11 finance: Amortization

It means: dividing the cost of the business (value creation and value delivery costs) over the number of units you intend to create over a certain period of time

-          That is a way of treating huge investments as variable costs
-          That is very easy way to determine the initial cost of the single unit
-          It helps also to make an initial prediction when you will reach the breakeven point

-          Amortization relies on the ability to predict the production rate and the demand. Well, Prediction is a very tricky business. Your prediction must be as close to reality as possible:
-          You must provide enough capacity to fill the demand
And not provide tooo much capacity and waste money to fulfill orders that aren’t there