What is a Divestment and How Does It Effect

 What is a Divestment and How Does It Effect

What is a Divestment and How Does It Effect

What is a Divestment and How Does It Effect

What is Divestment?

Geturnet -Divestment is a reduction in the type of assets, both financial assets and goods assets owned by the company. Divestment is often referred to as the opposite of investment activities. When the investment aims to add to the assets owned by the company or individuals to get a bigger profit, divestments actually reduce the company's assets. Therefore, divestment is often connoted as a negative activity because it reduces assets, even though this activity may also be carried out to increase profits for the person/company.

Divestment Method

What are the methods for carrying out the asset disposal action? Here's an explanation.

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Making Sales

This method is usually done by processing cash transactions, although this is not always the case. One of the reasons corporations sell part of their wealth is to protect the company from losses due to unsuccessful acquisitions.

Performing Spin-Offs

The second divestment method is a spin-off, in which a company division is converted into a separate entity or business unit. Meanwhile, the shares in the new separate unit will still be held by the shareholders of the parent company. In this method, the corporation does not earn money.

Do Carve-Out

Carve-out is a method whereby a division within a corporation is turned into a separate business unit. Different from the spin-off method, in the carve-out method, the separate business unit becomes a new business outside the parent company.

Do stock tracking

You do this by looking at how much dividends are distributed to shareholders. Through the amount of dividends, the company can find out the performance of the division.

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Divestment Purpose

Various goals can be achieved when a company divests, including:

1) Reduce expenses and increase income. Asset expenses in question include taxes, maintenance costs, and others.

2) Focus on a more profitable business.

3) Generating large profits at the right time, such as reselling investment instruments when prices rise.

4) Reducing the potential for greater losses because the assets being sold are no longer profitable.

Securities to Divest

The impact of these activities can be negative and can also be positive. The following is the effect of reducing assets.

Changes in Financial Balance

  The transfer action resulted in reduced corporate wealth. Changes in ownership of business lines certainly have an effect on the balance sheet.

Loss of Potential Income

Selling part of the wealth to other business entities does provide cash.

Reducing Company Expenses

The positive effect of selling some assets is that it can save the corporation from bigger losses.

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