Glossary - Write-down
A write-down is an accounting practice used to adjust the book value of an asset when its fair value is less than the carrying value on the balance sheet. A write-down occurs because of changes in the asset's market value or its useability, leading to an impaired asset. This action reflects on a company's financial statements, specifically on the income statement, where it is recognized as an expense, thus reducing net income for the period. Write-downs are essential for ensuring that assets are accurately represented on the balance sheet at no more than their recoverable amount, providing stakeholders with a more accurate picture of a company's value.
Also known as
- Impairment Loss
- Asset Write-Down
Use cases examples
- Annual Report: In the fiscal year 2020, the company recognized a write-down of $2 million on its commercial real estate holdings due to a persistent decline in market value.
- Financial Statement Note: Note 7: Inventory write-downs amounted to $500,000 due to excess stock and obsolete products, reflecting management's efforts to present a fair value of assets.
Considerations for investors
- Assessing the frequency and reasons for write-downs as indicators of potential management issues or sectoral challenges.
- Considering the long-term impact of asset write-downs on company value and investment recovery prospects.
Considerations for founders
- Understanding the implications of asset write-downs on the company's financial health and shareholder equity.
- Recognizing the importance of accurate asset valuation and the potential impact of write-downs on access to future capital.
Get to know our world class tools and services
Transform your operations with world class tools
We have created several tools to help investors spot the best opportunities and manage their portfolio.
Let's unlock your business potential with Automations
Embrace the future with our tailored subscription service that combines strategic planning and practical implementation.