Wasting Asset
Candlefocus EditorGiven the steady decrease in value of wasting assets, businesses frequently seek to capitalize on these assets in order to receive the maximum value from them. For example, businesses may elect to either sell or lease their assets. When it comes to vehicles and machines, the business may decide to liquidate them for the highest value so as to free up capital or simply upgrade to newer, more efficient models.
For exhaustible resources, businesses are often under pressure to maximize returns before the resource is completely exhausted. To achieve optimal value, oil and gas companies typically lease out the sites in order to extract as much value from the resources as possible. The same principle applies to all wasting assets, regardless of the source of value.
At the same time, businesses must be aware of the limitations of wasting assets. Since these assets decline in value over time, they tend to be the first assets to experience losses when economic conditions deteriorate. In the case of oil and coal reserves, declining demand and prices could lead to huge losses. Additionally, businesses must ensure that they receive adequate compensation for these assets. Companies must keep a close watch on market conditions in order to ensure that they are not unintentionally giving away assets at below market value.
Although wasting assets can offer significant rewards and opportunities, they can also generate large losses when assets become obsolete or the market conditions shift. Businesses should therefore take the time to carefully consider their options when it comes to wasting assets in order to maximize their value.