PP&E

What is PP&E?

PP&E is an abbreviation for property, plant, and equipment. They lie under the long-term assets on the balance sheet, and they indicate the value of a company's long-term tangible assets. This means that these assets cannot be easily liquidated. Depending on the industry and the business model, the value of PP&E may vary.

Examples for PP&E

Here are some common items under PP&E:

• Machine
• Land
• Physical Buildings
• Furniture
• Offices

Why is PP&E an Important Indicator?

Firstly, PP&E is a signal for the management team's confidence in the business's future operation. Since these assets are hard to liquidate, if a company is increasing its investments in PP&E, it might imply that the company is confident to function well for at least the future 5 to 10 years.

On the other hand, if a company is selling its PP&E, it might be a signal that the company is experiencing financial difficulties and need cash to refund its business.

Therefore, similar to other data in the financial statements, when we analyze PP&E, it is important for us to conduct sufficient research so that we built a more well-rounded perspective of the company’s overall situation.

PP&E and Depreciation

When considering PP&E, depreciation is often a closely linked topic. As mentioned above, one typical trait of PP&E is that they are highly illiquid and often expensive. Therefore, companies often depreciate them when listing them on the balance sheet. The details of how the company depreciated can be seen under the cash flow statement or the supplement of the income statement.