What Is Asset Redeployment?
Asset redeployment is the strategic reallocation of assets from a less profitable use to a more profitable use. At the point when companies redeploy assets, they take idle or underutilized capital and change how this capital is utilized to increase profitability. A legitimate asset redeployment strategy can permit a firm to accomplish better outcomes for a similar cost.
Grasping Asset Redeployment
However assets benefit companies, assets likewise cost money. These costs incorporate storage, maintenance, and replacement. At the point when assets are not productively used, they sabotage profitability. At the point when this happens, it is beneficial for a company to survey costs associated with its assets to determine whether they ought to be redeployed somewhere else.
Take for instance a company that burns through $5 million a year on upkeep for a gadget making machine that creates $6 million in profits. The $1 million in profit margin can be positive or negative, contingent upon whether the $5 million could be utilized all the more proficiently somewhere else.
In the event that the $5 million is allocated to a "Better than ever" line of gadgets that produces $7 million in profits, then, at that point, the extra profit margins would make this a more lucrative option. In this model, the company would be better off resigning its gadget making machine and redeploying capital to the new product line.
At the point when the asset is a decent — like equipment or machinery — redeployment can be a money-saving alternative to buying a brand new replacement. In the model over, the gadget making machine may be fit for creating the new product line, making it superfluous to purchase another one.
One more form of asset redeployment is an asset sale (called "asset disposal"). The proceeds from the sale increase the company's cash balance and eliminate the costs of keeping up with the asset.
Asset disposal for the most part alludes to the removal of a long-term asset that has been completely depreciated or is presently not valuable. In the last option case, the asset would be sold at a loss or gain, and there would no future costs associated with that asset. Recently allocated funds could then be utilized somewhere else.
An asset disposal influences the balance sheet by recording the removal of an asset, stamping depreciation, and noticing the gain or loss from the sale.
Assets that a company doesn't use by any means and which should be redeployed or sold are called "surplus assets."
Real World Example
In 2014, General Electric (GE) sold its machine business to Electrolux for $3.3 billion. The sale was part of the company's long-term redeployment of capital from non-core assets like media, plastics, and insurance for high-development, higher-margin businesses like oil and gas, power, aviation, and healthcare. These moves empowered GE to create 92.8% of revenue from its industrial business by 2016.
Besides, in 2020, GE sold its kid light business. The subsidiary had been performing ineffectively for a really long time, so the company chose to sell and redeploy its assets, considering greater spotlight on industrial business.
- Effectively redeploying assets can bring about increased proficiency and higher profits at a similar cost.
- Asset redeployment alludes to the strategic reallocation of assets from a less profitable use to a higher profitable use.
- At the point when an asset isn't used and can be redeployed or sold, it is known as a "surplus asset."
- An alternative to asset redeployment is an asset sale, known as an "asset disposal."
- Assets cost money to store, keep up with, and supplant. Consequently, really conveying assets is significant to a company's cost management strategy.