Chapter 2 Article

http://www.contractjournal.com/Articles/2009/09/22/71882/plant-growth-some-way-off.html

Summary:
In the downfall of the plant market, most of the plants –owning contractors are facing a difficult situation which they have to make a decision so their business can go on. Due to the economic slowdown, the residual values of the fleets is falling and there will some new regulations implement in the near future, that makes the plant – owning contractors hard to continue their business. So, Most of them have to make a decision of either hire companies to sell their equipment and hold on to what they have, or buy more kit while prices are cheap. Depending on the different circumstances of each company, this decision will determine the business successful or not.

Connection:
In chapter two, residual value is the measure value of the asset in the next two years. Since the plant sales, the contractors’ fleets have fallen in residual values. In a business the non – current assets is extremely important because they are not just used for the operation activities, but also they are to cover the liabilities when it is necessary. Even though it is the residual value is only the estimate value, this value is pretty close to what the actual values of the assets are. So when the values of the long term assets are falling, once the company is in financial trouble, it is hard for them to get out of it.

Personal Reflection:
I believe the fixed assets are just as important as the current assets. When the company is in financial trouble, by selling some of the fixed assets sometimes could pull the company out of the hot water. However, in this news we know that the values contractors’ fixed assets are dropping, so once they don’t have enough current assets to cover up their liabilities, they may not have enough assets to pay off their debt. So except they want to close the business, otherwise, I don’t think they should sell their fleets.