Impact of Asset Impairment

In the previous article we learned about the Impairment of Long-lived Assets. Let’s now look at the impact of asset impairment.

In the initial period following an asset impairment, a firm’s:

• Asset turnover ratios will rise because the asset base is lower.
• Debt-to-Equity ratio will rise because the impairment has lowered the value of equity.
• Profit margins will show a one-time dip due to the write-down expense (assuming all needed write-downs have taken place).
• Book value of equity will drop.