Buildings & Improvements

‘Buildings’ in this particular context refers to the ones owned (not leased!) by your company and used in your operations. In other words, these are the buildings where your corporate facilities – offices, manufacturing plants, warehouses, etc., are located. All buildings that are owned by your company, but not used in your operations, are rightfully considered investments and, therefore, are listed in the corresponding section on your balance sheet.

Every building of yours has but one purpose – to create the maximum possible amount of financial value for your shareholders. A building is a much more versatile asset than your production equipment; therefore, must always concern yourself with the most profitable alternative between current and other alternatives available for using every building.

At any moment in time, you have essentially four alternatives for each of your corporate buildings: (1) continue using ‘as is’; (2) sell and move to other premises – owned or leased; (3) lease out and move to other premises – owned or leased; or (4) use for purposes other than current – e.g. to house a new business unit.

To choose the best course of action (from the financial value perspective, obviously), you must develop solid financial models for all these scenarios and choose the one with the highest NPV and IRR.

And again, all these scenarios require the market price for your building (which needs to be accurately determined), because the book value at which your building is listed on your balance sheet, in most cases has nothing to do with its true market value.