Loading the player...

What is a 'Write-Down'

A write-down is the reducing of the book value of an asset because it is overvalued compared to the market value. A write-down typically occurs on a company's financial statement, when the carrying value of the asset can no longer be justified as fair value and the likelihood of receiving the cost, or book value, is questionable at best.


Write-downs are typically reflected in a company's income statement as an above-the-line expense, thereby reducing net income. This, however, is not always a bad thing since a write-down is simply a paper loss; it lowers net income, reducing a firm's tax burden. Companies usually attempt to time large write-downs together so they can "take a bath" in one reporting period with the hope of quickly recovering in the next period.

Write-downs are especially common in businesses focused on the production or sale of goods, though impacts to the service industry can also occur. Not only can the value of the finished inventory decline, the value of the components used to create the inventory can also decline. Inventory that becomes incidentally damaged, rendering it useless for its designed purpose, may also be written down, along with any inventory reported as missing or stolen.

Write-Downs in the Retail Industry

The act of writing down is most apparent in the retail space. Certain assets, such as vehicle inventories or technology products, can change in value rapidly. For example, when a car model year rolls over, the cars from the previous year, though still brand new, lose value as the new model year vehicles become available. The same can be seen in technology goods, where the release of an updated version lowers the value of the previous.

Write-Downs and General Assets

The value of company-held assets can also lower with time, often through standard depreciation and issues of wear and tear. Manufacturing equipment and company vehicles generally lose value as they age. While real estate is normally seen to appreciate in value, if structures become significantly damaged or are deemed unusable, they may also be subject to losses.

Write-Downs and the Service-Based Industry

Similar to production, the service-based industry can experience the devaluation of its held assets. Even if the business is not centered on product sales, the value of the items required to perform the service are subject to wear and tear or becoming obsolete as technology changes. This can include items such as the point-of-sale system, display tables, store fixtures and any owned retail spaces. Any physical item that may have to be replaced due to loss of its ability to perform its key function may need to be written down over time.

  1. Inventory Accounting

    Inventory account is the body of accounting that deals with valuing ...
  2. Liquidation Value

    The total worth of a company's physical assets when it goes out ...
  3. Inventory Write-Off

    An inventory write-off is an accounting term for the formal recognition ...
  4. Adjusted Book Value

    The adjusted book value is a measure of a company's valuation ...
  5. Level 3 Assets

    Level 3 assets are assets whose fair value cannot be determined ...
  6. Book Value Per Common Share

    Book value per common share is a measure used by owners of common ...
Related Articles
  1. Investing

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  2. Investing

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  3. Investing

    Investment Value Vs. Fair Market Value: How They Differ

    Learn about the differences between an asset's investment value and its fair market value, including why many think fair market value is unrealistic.
  4. Investing

    Using The Price-To-Book Ratio To Evaluate Companies

    The Price-To-Book (P/B) ratio can be an easy way to determine a company's value, but it isn't magic!
  5. Investing

    Mark-To-Market: Tool Or Trouble?

    Mark-to-market accounting can be a valuable practice, but all bets are off when the market fluctuates wildly.
  6. Investing

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  7. Investing

    How to Analyze a Company's Financial Position

    Find out how to calculate important ratios and compare them to market value.
  1. What is the difference between book value and carrying value

    Dig deeper into the definitions of carrying value and book value, and learn to differentiate between their various financial ... Read Answer >>
  2. What is the difference between a company's book value per share and its intrinsic ...

    Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >>
  3. What is the difference between carrying value and fair value?

    Learn about the carrying value and fair value of assets and liabilities, what the carrying and fair value measure and the ... Read Answer >>
  4. What does it mean if a share's market value is significantly higher than its book ...

    Learn how investors and analysts compare the market value of stock shares to the book value per common share; discover what ... Read Answer >>
  5. What is the difference between carrying value and market value?

    Understand the difference between carrying value and market value. Learn when a company uses carrying value to value an asset ... Read Answer >>
  6. When is market to market accounting performed?

    Discover when mark to market accounting is performed, to what assets it is applied, and how frequently it must be applied ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center