Don’t bank on book value – There may be more to fixed assets than meets the eye
Abstract: Borrowers often pledge fixed assets — such as real estate and equipment — as loan collateral. But there could be many reasons that the book values reported on a customer’s balance sheets are greater than their current market values. To some extent, management can massage estimates to avoid booking an impairment loss. Beyond asset impairment, a borrower’s balance sheet may be “off” if management fails to maintain an accurate fixed asset ledger. In today’s volatile marketplace, it’s imperative to keep a close watch on fixed assets, because they represent the largest category of investments for capital-intensive borrowers.