I just realized that depreciation is really important for anyone running a business or investing because depreciation means the gradual decrease in the value of our assets over time, which directly affects the company's profit calculation.

Let's see how it works. For example, if a company buys an expensive computer worth 100,000 baht and expects to use it for about 5 years, using the straight-line depreciation method, we will deduct 20,000 baht in depreciation each year, illustrating how the asset's value is decreasing over time.

What’s interesting is that there are several ways to calculate depreciation, depending on the type of business. Some use the straight-line method, some use the double declining balance method, or even base it on actual usage. Small businesses often use the straight-line method because it’s simple and involves equal payments each year.

Here’s an important point: when accountants calculate the company's income, depreciation is deducted from revenue. Therefore, companies with many machines or buildings will have higher depreciation, which results in lower net profit. This is why EBIT (Earnings Before Interest and Taxes) is important because it shows income before deducting depreciation.

Another related concept is amortization, which is similar to depreciation but applies to intangible assets, such as copyrights, patents, or even loans. For example, if a company acquires a copyright for 10,000 baht and expects to use it for 10 years, it will amortize 1,000 baht per year.

The main difference between the two is that depreciation applies to tangible assets (like machinery, buildings, vehicles), while amortization applies to intangible assets (like copyrights, patents). Additionally, depreciation has multiple calculation methods, whereas amortization mostly uses the straight-line method.

If you are an investor or a business owner, understanding depreciation and amortization will help you read financial statements better and see the true picture of a company's profit and assets. It’s not just numbers in the books but a way to measure how your money creates value over the long term.