How to Interpret Writedowns

There has been a recent spate of writedowns in the financial industry as a result of mortgage and credit market problems. While the enormity of these numbers may be staggering, writedowns are common occurrences in the business world. However, the magnitude and causes of writedowns vary. This installment of The Finance Professor will look at writedowns, from both economic and the accounting perspectives.

For starters, it's important to understand that companies will take a writedown (the downward valuation of an asset ) for a variety of reasons. Here are the most frequent rationales:

• Goodwill impairment
• Asset revaluation
• Discontinued operations

Goodwill Impairment ...