Fixed Assets (PP&E)

Fixed assets, formally reported as Property, Plant, and Equipment (PP&E) on the balance sheet, are long-term tangible assets that a company uses to produce goods or deliver services. They include land, buildings, machinery, vehicles, furniture, and computer equipment. Unlike current assets, fixed assets are not expected to be converted to cash within one year — they are held for ongoing productive use.

Fixed assets are recorded at historical cost minus accumulated depreciation, giving their "net book value." A factory purchased for $100M ten years ago with $60M accumulated depreciation shows a net book value of $40M on the balance sheet, even if its market value might be quite different. This historical cost convention means that balance sheets can significantly under-represent the true value of real estate and other assets held for decades.

For fundamental analysis, fixed assets reveal the capital intensity of a business. Companies with large PP&E balances relative to revenue (manufacturing, utilities, airlines) require significant ongoing capital investment to maintain and replace aging assets. The fixed asset turnover ratio (Revenue divided by Net Fixed Assets) measures how efficiently a company uses its physical assets to generate sales. Asset-light businesses (software, consulting, financial services) have minimal fixed assets, which generally indicates superior economics because they can grow without proportional capital investment. When analyzing acquisitions, pay attention to whether the target's fixed assets are fairly valued — significantly depreciated assets that still function well represent hidden value, while aging assets requiring imminent replacement represent hidden liabilities.