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Creating Value With Fixed Assets

Please note: This item is from our archives and was published in 2000. It is provided for historical reference. The content may be out of date and links may no longer function.

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Every company has tangible assets (computers, copiers and company cars, for example), but few companies use them to create shareholder value and increase cash flows and income. The more money a company has invested in these assets, the greater the impact asset visibility, knowledge and control will have on the bottom line.

Here are some things a company should consider when determining whether its assets are creating value:

What is the status or condition of the tangible assets in the company’s portfolio? Valuable assets may be idle because they are in disrepair or have been replaced. These assets should be repaired or redeployed within the organization so they can be put to better use. If the company has no use for them, it can sell them for cash or donate them for a tax deduction.

Is the company using its assets efficiently? Employees or departments will often “squirrel away” shared assets that are in high demand to ensure they are available when they need them. This can lead a company to purchase and maintain excessive assets while others sit idle.

Does the company experience redundant purchases of assets? This is a classic case of one hand not knowing what the other is doing. One department or employee may stop using an asset while another employee or department still needs that item. Unless the two parties have a means of communicating their needs, the company risks purchasing assets it already has.

What is the fair market value of an asset? If an asset reaches the end of its life, a company has several disposal options: sell, trade, donate or scrap. It’s important to know which option creates the most value for the company, either in cash benefit or from a tax deduction.

What does it cost the company to maintain its assets? In some cases, the cost of maintaining older assets may exceed the cost of buying or leasing new ones. In other cases, even if the purchase or lease costs of a new asset exceed those of maintaining an older one, the secondary benefits of newer technology and increased reliability may be enough to justify the new acquisition.

Is the company paying too much property tax on its assets? Companies often lose track of what assets they have at which locations. Many times this results in double payment of property taxes. In some cases companies may maintain a record of assets they no longer own, resulting in excessive and unnecessary property taxes.

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Does the company know precisely when to sell an asset to capture the most value? And where can the company sell the asset fastest for the most money? The availability of a new model can dramatically reduce the fair market or trade-in value of an existing asset. Knowing what factors will have an impact on asset value in advance enables you to plan to sell or dispose of an asset in a way that preserves its value within the organization.

Source: iVita Corporation, Houston, www.iVita.com .