I'm increasingly seeing director's reports qualifying asset write downs as "non-cash items" like an apparition on the balance sheet which has been magic-ed away in a puff of smoke.
Well the truth is that what is a non-cash item now was once hard won, or hard earned, shareholders funds, colloquially known as "cash" to the average human. Just because the cash was invested into the business in one year but dissolved into nothing in another year doesn't make it not cash.
So what is an asset write down? An asset is something that we the shareholders own. In part, it often is cash, perhaps inventory, property, investments or sometimes intangible assets generated when a company buys another at a value over an above it's book value. When a company writes down the value of an asset it is because they believe that the asset is misrepresented as to its value or future earnings potential. Perhaps because the inventory it holds nobody wants, or a business was paid too much for, or it's the legacy of a past management with a failed business strategy. An asset write down is an admission of failure, unintended or otherwise.
Most shareholders seem to care little about this balance sheet conjuring. Try telling your partner that the last 4 years of superannuation contributions don't appear in the superfund balance because the stock market has had a correction, but not to worry its a non-cash item. The financially illiterate can pick holes in that argument.
There are times when asset write downs are unavoidable such as for exploration companies and managed investment companies, or when a competent management takes control over an incompetent one, it's part of their business. But tell it like it is: it might not be cash now but it was once and it shouldn't be dismissed so easily.
