What does amortization refer to in finance?

Amortization in finance specifically refers to the process of gradually reducing the outstanding balance of a loan through scheduled payments over time. These payments typically consist of both principal and interest components, allowing the borrower to pay off the loan in full by the end of the term. This systematic approach helps in managing debt, as it outlines a clear repayment plan that promotes financial discipline.

The other concepts mentioned also pertain to finance but differ significantly in nature. Writing off an asset relates to the process of removing an asset from the balance sheet when it no longer holds value or has been disposed of. The increase of capital over time is more related to investment growth or retained earnings, rather than the structured payments of debt. Lastly, the valuation of a company’s equity involves assessing the worth of the owner's stake in the company, which is not aligned with the amortization process focused on loan repayments.