Re: Lots of companies doing this

It's precisely that - an accounting wheeze. One of the main metrics you'll see in any company report is the return on assets - not how much money you make, but how much money you make as a proportion of how much money is tied up inside the company in real estate, plant, reserves etc. The argument is that a company making £2m on £10m of assets is "better" than one making £3m on £20m. In purely percentage terms it makes sense at least in the short term but it isn't how great companies are built. If you can free up cash to spend profitably elsewhere perhaps, but more often than not it simply ends up going back to shareholders or blown on overpriced vanity acquisitions - witness the current kerfuffle over the proposed Dell buyout for example.

The problem is that inevitably makes the company smaller in absolute terms and it either loses markets (when divisions are sold off) or running costs (when assets are sold and outsourced). Neither is good for the long term prospects of the company. Greater leverage also means greater risk, higher borrowing costs and greater vulnerability to events such as the financial crash.

There's plenty of examples of good companies being run into the ground this way: personally ICI is always the one that comes to mind. A once great industrial behemoth got taken over by the beancounters who sold off division after division and plant after plant, arguing "those are low growth areas" all along the line. They apparently didn't notice the company had shrunk and shrunk until it was taken over by foreigners for beer money.

In short, if you have money involved in the widget business pull it out pronto when it is run by people proclaiming "this is how you run a business" instead of "this is how you make a better widget".