Asset is another term to refer to property or wealth. Basically assets are bought with the hope that it will provide benefits to the owner. The benefits in question are not always in the form of money but can be in the form of other things, such as time, effort, costs and so on.
Assets are generally managed in two ways, namely stored until the price rises and used for business or work needs. Both are assets that are used to invest. However, the two assets provide different forms of profit.
Assets that are managed in a stored manner usually have a higher value over time. The increase in value is certainly not certain, but is estimated based on fundamental and technical analysis. Meanwhile, assets that are managed by means of being used for business or work needs are valuable assets in terms of their functions and uses. The difference with the first asset is that the value of this asset is getting lower and lower until it eventually becomes worthless. This type of asset is referred to as wasting assets.
Understanding Wasting Assets
A wasting asset is a type of asset whose value has continued to decline since it was purchased. This type of asset is valuable because of its functions and uses that can be utilized for business and work needs. So that asset gains do not come from capital gains, but from asset performance in helping businesses or jobs become more efficient.
Examples of wasting assets are production machines, vehicles, office inventory and so on. These assets have a lower value after they are purchased, even when they have not been used at all. The decline in the value of the asset will occur gradually over time, until when the asset is no longer usable, the value of the asset is almost completely lost.
Wasting assets are basically not intended as assets that are stored like gold, shares, property and so on. Wasting assets must be used to extract their value. In fact, it is not uncommon for wasting assets not to provide direct cash returns. However, in exchange there are other advantages, such as time, energy and cost efficiency. So that a job can be completed faster, easier and cheaper.
Wasting Assets in Financial Markets
Wasting assets actually has a broad context. In essence, any asset whose value continues to decline from time to time can be categorized as a wasted asset.
Based on this understanding, wasting assets is not always related to physical assets. For example, in the financial market, one of the financial assets that includes wasting assets is an option or option. An option contract allows a person to have the right to buy and sell an asset, commodity and others at an agreed price and with a predetermined time limit.
Basically options are speculative media. Someone who proposes making an option contract, for example a call option, for a certain asset with a one month time limit, is actually speculating that the price of the asset will go up instead of ahead. That way, that person can get a cheaper asset purchase price according to the conditions at the time the contract was made.
Options are included in wasting assets because the value of the option will decrease from time to time until it expires. Options contracts can lose value as they get closer to expiration, meaning it’s easier to see if the option will make a profit or a loss.
How to Manage Wasting Assets
Wasting Assets experience a decline in value over time or what is known as asset depreciation. In a company, business people must know very well what depreciation is and how to manage it. So that the purchase of wasting assets does not cause losses and businesses can anticipate if the assets suddenly cannot be used.
The way to manage wasting assets is to use these assets optimally according to their function. In addition, the purchase of wasting assets must also be adjusted to the needs. So that no money is wasted because assets do not provide commensurate benefits.
For example, airlines operating in Vietnam may choose to use smaller planes with tens of passengers rather than large planes with hundreds of passengers. Because the level of passenger demand is not too large, so a small plane is enough to meet the demand. In addition, many airports in Indonesia have short runways, so they cannot be used by large aircraft. For this reason, it is more appropriate to buy a small plane that can reach most of the existing airports.
Wasting Assets are properties and investments that have a limited life. Oftentimes, Wasting Assets are resources that are meant to be used until nothing is left. During a period of productive use, this type of asset generates income, but eventually reaches a state where the value of the asset begins to decrease.
For example, natural resources obtained as investments, this is a good example of wasting assets. Meanwhile, wood is one type of wasted asset that can be harvested and refined for a specific use. In some cases, wood is used in the construction of houses, where the wood reaches its peak value and then slowly begins to shrink. In some wood applications, thinning occurs more rapidly, such as in the production of wooden toothpicks. Discarded after one use, the wood converted and used for this purpose reaches its highest value at the time of sale, then provides less and less returns as the used product is crushed and re-leafed into other products. Finally, the fiber cannot be re-leafed any further and wasted assets are deemed to be unprofitable, or no longer able to generate even reduced revenue.
Meanwhile, natural gas, coal and oil are all considered investments that fit the profile for wasting assets. These wasting assets are often considered consumed assets, because once used and there is little or no way to recycle the product to generate additional income. Basically, any product that comes from the mine will qualify as a wasted asset, because at some point in the future, the mineral will cease to have a high value and will be depreciated until there is no return at all.
Often, wasted assets are worth the initial investment. For example, an investor may choose to harvest large quantities of wood at a relatively competitive price, then resell the material at an extraordinary profit. Buyers in turn can use the wood to create a wide variety of products, which are produced at a profit. However, once the consumer has taken ownership of the goods produced, the process of depreciation will begin and the once profitable material will cease to generate income.