For millenniums, scientists and philosophers pondered on the ancient craft of transmutation, the ancient wisdom that heaped on the belief of the philosophers’ stone, the elixir of life and the art of turning metals into gold; Alchemy.
In as much as there may be a small section of the philosophical world who still hold on to these beliefs and concepts, the theory of alchemy was generally disproved in the early 19th century. But nonetheless, the abstract of the motion, signifying turning something virtually worthless into something of great value is something that mankind innately craves for. It is this very desire that spurred on the thought of alchemy.
In layman terms, investment is the act of allocating resources with the expectation of latter profitability or returns. In the business world, profit from investment is generated by imputing resources into your assets and cutting the cost on your liabilities ( since they cannot be completely eliminated and are necessary for growth of a venture); the process is continued till the venture can generate enough revenue that can exceed the cost of operations or surpass the break-even.
Before I go further I will like to stress the role of assets and liabilities and how they influence business and investments. Assets are properties owned by a company and they increase the value of the company. Liabilities, on the other hand, are the obligations the venture has to fulfill. The difference between the assets and liabilities gives the equity which can be defined as the value share of the stakeholders. The higher the equity, the higher the profile of the venture. As earlier stated, the liabilities cannot be eliminated; the way to increase the value of the venture or company will only be by increasing the value of the existing assets or by acquiring new assets.
Now, this piece is not written with the intention of boring you with magnanimous accounting terminologies that you might not really comprehend. I’ll repeat again with simpler terms. Assets are things you own and can give you money. Liabilities are considered debts that will take money from you. If you subtract money that you don’t really own from the money that you have in total; you get the money you actually have; that is your value or better known as your equity. Getting the hang of it, right? Now you might be wondering why then did I start this business article with a fantasia concept like alchemy?
Let us then look at the case of Ben, a certain man who lives in a metropolitan city; this Ben has an automobile that he uses to go to his workplace at about 10km away from his residence. Ben was then able to secure a job at a walking distance from his residence and hence didn’t need his car except on weekends. Keeping in mind that Ben carries out monthly maintenance of 50,000 dollars every month on his vehicle. Now the car that was an asset that helped him with his transport expenses is now more of a liability. At this point, Ben’s understanding of these dynamics decides to invest this liability as an asset. He then begins to rent his car at the rate of 60,000 dollars every month. He then turns this liability into an asset which fetches him an extra 10,000 dollars every month.
Or should we look at Anderson who had a rented apartment in a different city that was inhabited’; he was paying 120,000 dollars for a year for the three-bedroom franchise. Now instead of totally leaving the house, which was a liability to him since he only resided there for the last six months of the year. He then took the initiative of renting out each of the rooms for 25,000 for the six months he wasn’t available; this generated over half of the rental fee and can further save his income.
Basically, the alchemy of this is converting the hidden expenses and cost into an avenue to raise income. These expenses do not normally appear and are hard to spot but are easily detectable after a good financial analysis. Investment does not always have to be in new ventures but one could double his/her savings by converting one’s expenses into income-making sources. Many top ventures and enterprises use this method to amplify their profit; by converting the expenses or liability into assets through investment; it can be said that one has converted seemingly worthless resources into a very resourceful one.
Liability sometimes comes in the form of opposition and competition; so these mega-companies instead of out-advertising the competition, go for the jugular and buy the competition thereby nullifying the expense and as well raise the value of the company. Examples of these can be seen in Apple purchasing Beats by Dre, or Facebook purchasing Instagram and Whatsapp.
This ancient but simple investment plan is one for the ages and has been of very high importance in the business. Just for thought-provoking instances, one can see this logic being applied in child upbringing when children are little; they are big liabilities as they exhaust time, energy and funds. But parents start to invest these same quantities of time, money and energy so that these liabilities can then become assets to their parents or guardians and society in the future. It is then evident that it is something as basic as barter and is worth applying in everyday life.