BUSINESS SPEAK · DEP
DEP: Depreciation
The drop in an asset’s value as it ages or wears out.
What it means
Depreciation spreads the cost of a long-lasting item — a car, a machine, a building — over the years you use it. Straight-line takes the same amount off each year; declining balance takes a percentage of what is left, so value falls fastest at the start.
Where you’ll meet it
- Accountants record depreciation as a cost even though no cash leaves the business that year, which is why it is added back in EBITDA and free cash flow.
- For personal assets like cars it tells you roughly what yours is worth today.
Worked example
Scenario: A delivery van costs 30,000, lasts 5 years and is worth 5,000 at the end (straight-line).
- Value lost: 30,000 − 5,000 = 25,000
- Per year: 25,000 ÷ 5 = 5,000
- After 2 years: 30,000 − 2 × 5,000 = 20,000
Answer: The van loses 5,000 a year and is worth 20,000 after two years.