Land

‘Land’ in this particular context refers to the land owned (not leased!) by your company and used in your operations. In other words, this is the land where your corporate facilities – offices, manufacturing plants, warehouses, etc., are located. All land that is not used in your operations, is rightfully considered an investment and listed in the corresponding section on your balance sheet.

Your land has but one purpose – to create the maximum possible amount of financial value for your shareholders. Land is your most versatile asset in the PPE category; therefore, must always concern yourself with the most profitable alternative between current and other alternatives available for using this land.

Essentially, it all boils down to the choice between continuing to use this land for your company operations and selling or leasing out this land and relocating your premises elsewhere – onto the land that you will buy or lease and into the buildings that you will buy or lease.

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

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