décembre 20, 2018

Creating Value Through Corporate Trade Under IFRS

The concept that business strategies should be judged by the economic value they create is commonly accepted in the business community. Companies often, in the ordinary course of business, produce some amount of excess inventory, capital goods or real estate as technology advances, supply outpaces demand or changes in the business environment occur. These excesses, overstocks or underutilized assets are also referred to as “underperforming assets” and represent a substantial corporate value opportunity that is often times suboptimized. Corporate trade is a strategy to create value typically in the form of cash savings or incremental business. Amazingly, while corporate trade creates substantial economic benefi ts, it is often misunderstood and consequently overlooked. In evaluating the productivity of assets, some companies may dispose of their underperforming assets through liquidation and realize 30-40% of the assets’ original value, while other companies today are utilizing corporate trade strategy to realize a much greater economic value of the assets traded. The potential realization of an extra 60%-70% of value is substantial.

 

How Does Corporate Trade Work?

 

A corporate trade strategy involves selling the assets at typically 2-3 times greater than their current fair market value to a corporate trading company such as Active International (“Active”). Active purchases these assets using its currency known as trade credits. Trade credits coupled with cash (rather than 100% cash) are then used by the selling company to purchase media, retail marketing, printing, travel or other goods and services through Active at the equivalent independently determined cash amounts that would have otherwise been spent. Thus, corporate trade creates value through cash savings. Certain companies have also applied a similar strategy utilizing excess manufacturing capacity to produce products for corporate trade which can be distributed outside their normal distribution channels. This corporate trade strategy creates incremental business and, at the same time, creates economic benefit as the trade credits are utilized.