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● Bad Assets, Good Assets

The Value of Corporate Assets and Management Strategies: The Real Impact of Assets on Corporate Profits

The efficiency with which a company utilizes its assets significantly impacts its revenue, profit, and ultimately, its corporate value.
This article specifically details 'the process of assets melting down and turning into profits' and why some assets become bad assets that damage company value.
It also covers the difference between accounting depreciation and actual revenue generation, asset classification and management strategies, and the choices companies can make when assets decrease.
It includes asset management strategies in line with the latest economic trends.

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1. What are Assets – Understanding Corporate Assets

Simply put, corporate assets = everything of value that a company owns or controls.
This includes both tangible assets (factories, buildings, machinery, etc.) and intangible assets (patents, brands, software).
When looking at financial statements, the items listed as 'assets' are directly related to the company's ability to generate cash.

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2. The Difference Between Asset Depreciation and Actual Value Creation

Financial statements reflect depreciation (the accounting decrease in asset value each year),
But the real question is whether actual cash generation and revenue growth show effects greater than depreciation.
For example, if you buy a machine for 1 billion won and depreciate it over 5 years,
If the revenue generated annually by this machine is greater than the depreciation cost (200 million won), it is a 'good asset'.
Conversely, if revenue generation is minimal while accounting depreciation continues,
This asset turns into a 'bad asset' that erodes the company's value.

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3. Changes in Asset Structure and Corporate Response Strategies

Over time, corporate assets naturally decrease or become obsolete.
At this time, companies mainly make two choices:

• First, actively sell unnecessary assets (Asset Disposal) to strengthen cash liquidity
• Second, maximize the efficiency of existing assets (Asset Optimization),
  That is, transform the structure to generate more sales and profits per asset

When making these decisions, it is essential to look at the return on assets (ROA) indicator.

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4. Bad Assets vs. Good Assets, the Real Criteria

Bad assets only incur maintenance costs, depreciation continues, but there is almost no actual sales or profit.
Good assets generate cash flow beyond depreciation and directly contribute to company growth.
Establishing these criteria clearly can prevent waste of resources.
Especially in the global economy, companies with solid asset structures secure competitiveness.

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5. Latest Economic Trends and Changes in Asset Management

Recently, the proportion of intangible assets (IT, brand value) has increased rapidly due to digital transformation and ESG management.
There is a risk of falling behind in competition by only looking at traditional tangible assets (factories, machinery).
Realigning the asset portfolio in line with the latest trends,
The 'restructuring' strategy of shedding inefficient assets is a key keyword.

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6. Key Management Indicators and Differentiation Strategies

Evaluate 'how efficiently assets are being used' with ROA (Return On Assets) and asset turnover
Asset strategy that can gain an advantage compared to competitors (e.g., factory automation, AI-based information system input, etc.)
Shareholder value increases over the long term as asset efficiency increases.

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7. Future Challenges and Implications

At a time when corporate assets are decreasing,
How to actively distinguish between 'assets to discard' and 'assets to grow',
It is important to set a direction to increase future competitiveness, such as long-term intangible asset investment
Asset restructuring certainly determines the future, especially during economic crises and recessions.

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< Summary >
Corporate assets must be used valuably to generate real profits.
Comparison between depreciation and actual cash generation is essential.
Unnecessary assets need to be sold or their efficiency maximized.
It is important to re-establish the tangible/intangible asset portfolio in line with the latest economic trends.
Key indicators (ROA, asset turnover, etc.) must be actively managed.

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[Related Articles…]

• Corporate Management Trends and Asset Strategies in 2024
• Asset Restructuring Measures Amid the Global Economic Crisis

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