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Limitations of Property, Plant, and Equipment (PPE)

PP&E are important but capital-intensive assets for many companies. While PP&E make up a large portion of assets for some firms, they do not reflect intangible assets or the full value of companies with few fixed assets. Investors should monitor a company's PP&E as well as any sales of fixed assets, as these transactions can impact profits.

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40 views

Limitations of Property, Plant, and Equipment (PPE)

PP&E are important but capital-intensive assets for many companies. While PP&E make up a large portion of assets for some firms, they do not reflect intangible assets or the full value of companies with few fixed assets. Investors should monitor a company's PP&E as well as any sales of fixed assets, as these transactions can impact profits.

Uploaded by

Jann Vic Sales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Limitations of Property, Plant, and Equipment (PPE)

PP&E are vital to the long-term success of many companies, but they are capital intensive.

Companies sometimes sell a portion of their assets to raise cash and boost their profit or net

income. As a result, it's important to monitor a company's investments in PP&E and any sale of

its fixed assets.

Since PP&E are tangible assets, PP&E analysis doesn't include intangible assets such as a

company's trademark. For example, Coca-Cola's (KO) trademark and brand name represent

sizable intangible assets. If investors were to only look at Coca-Cola's PP&E, they wouldn't see

the true value of the company's assets. PP&E only represents one portion of a company's assets.

Also, for companies with few fixed assets, PP&E has little value as a metric.

Example of PP&E

Below is a portion of Exxon Mobil Corporation's (XOM) quarterly balance sheet as of

September 30, 2018.

We can see that Exxon recorded $249.153 billion in net property, plant, and equipment for the

period ending September 30, 2018. When compared to Exxon's total assets of over $354 billion

for the period, PP&E made up the vast majority of total assets.1 As a result, Exxon would be

considered a capital intensive company. Some of the company's fixed assets include oil rigs and

drilling equipment.

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