Why Physical Assets are Overrated
Physical assets cover a lot of different things that add value and worth, but the key assets are equipment, property if you own it outright, and of course cash, or cash equivalents. For the longest time, it was these assets that were used to determine how valuable your company was financially, and were used to help businesses attract shareholders and investors.
Physical assets are still important, as, without them, many businesses won’t be able to function at all, but their worth has recently depleted, as some of the top companies that have huge value behind them have a lot less physical assets that you might think.
Not having any physical assets doesn’t mean that they have no assets in all. In fact, all it means is that their assets are intangible, meaning that they’re not physical entities. For example, companies like Netflix don’t really have a lot of physical equipment to run their service, and certainly don’t own a DVD copy of every film or TV series they have on their platform. What they do have is plenty of intangible assets, things such as intellectual property like patents, trademarks, reputation, and designs.
It’s these intangibles that are becoming more and more important as time moves on, and businesses are starting to shift away from physical assets, as, in the digital age, they’re not helping them grow anymore. Amazon has a tiny amount of brick-and-mortar stores, while Uber doesn’t manage or even own a fleet of cars, and eBay has nothing to do with a supply chain, making them all light of physical assets, but still some of the most popular brands around.
There are many various different forms of assets, and getting to grips with them can help you better manage your assets so that you can make more accurate valuations of your company’s worth, while also helping you make key decisions on how to grow your businesses value.
The Downfall to Physical Assets
Physical assets have always been burdensome, but are even more so now because of their fast depleting value. Physical assets need to be moved around and stored, meaning that managing them and maintaining them can be a drain on resources. This is especially the case if they have to be transported to somewhere new as acquiring new facilities and offloading old ones can be difficult. They also lose value as they age, which means so does your company, and so they constantly have to be updated.
There’s an argument to be had that these assets are preventing certain companies from adapting to the digital age and weighing them down. This has merit as some of the older companies that were huge because of their physical assets have started to dwindle and fall – consider the case study of Blockbuster. These physical asset–heavy companies are starting to look old-fashioned, slow–moving, and inflexible, which is starting to put a lot of investors off.