What Is Depreciation?

By Kristi Waterworth – Updated Nov 23, 2025 at 5:42 PM

Key Points

Depreciation helps companies reduce asset value over time for tax and asset valuation purposes.
Various depreciation methods exist, including straight-line and double-declining value.
Understanding depreciation is crucial for evaluating company financial health and investment potential.

There are a number of accounting techniques used by publicly traded companies that can better explain on paper how their assets are aging. Depreciation is one of them. It’s important to understand this concept before diving head-first into financial statements.

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Pencil resting on a balance sheet. — Image source: Getty Images.

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Lease

An agreement between two or more parties for one party to temporarily take control of an asset of some kind.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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