Property in the Balance Sheet

High value investments in the balance sheet such as freehold property are not core trading assets, so are best left to property companies.

Property and other Non-Current Assets

Broadly known as fixed assets, any physical non-current asset including property represents cash and / or financing resources that are sealed away from cash flows capable of supporting trading activity.

Regardless of how attractive adding a high-profile investment to the balance sheet may appear to be, it is always working capital, positive cash flows and adequate returns from these that define the financial health and true value of any good business. 

That’s because cash locked up in a property, let alone any further cash needed to service its financing will not be available for core trading, which is where profits followed by everything else come from.

Risks of Property in the Balance Sheet

Investing in property is not fail-safe. In the event of an economic downturn, the value of property of all classes will be an early victim; most especially commercial property.

A significant investment in property by a trading company can then become a liquidity burden as opposed to a desirable asset.

Property and Secured Creditors

It is often argued that the presence of property in the balance sheet can be regarded as a reassurance to creditors. That can be so but not necessarily in a good way.

What is more likely is that if a company experiences problems that are likely to take time to satisfactorily resolve, secured creditors may use property as a get-out-of-jail card by forcing the business into administration and using that to get their cash back quickly and relatively painlessly.

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