Question

Property, Plant and equipment (PPE) are key items for any company to operate at an effective level. These range in different types. Choose any company and describe how PPE can help the company?

Answer 1

Property, plant, and equipment (PP&E) are long-term assets vital to business operations and not easily converted into cash. Property, plant, and equipment are tangible assets, meaning they are physical in nature or can be touched. The total value of PP&E can range from very low to extremely high compared to total assets. It is important to note when calculating equity.

PP&E Formula and Calculation

Analyst and others will use the PP&E of a company to determine if it is on a sound financial footing and utilizing funds in the most efficient and effective manner.

Net PPE=Gross PPE+Capital Expenditures-AD

where:AD=Accumulated depreciation

To calculate PP&E add the amount of gross property, plant, and equipment, listed on the balance sheet, to capital expenditures. Next, subtract accumulated depreciation from the result.

As a reminder, accumulated depreciation is the total amount of a company's cost allocated to depreciation expense since the asset was put into use. Depreciation is the process of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. In most cases, companies will list their net PP&E on their balance sheet when reporting financial results, so the calculation has already been done.

• Property, plant, and equipment are also called fixed assets, meaning they are physical assets that a company cannot easily liquidate.
• PP&E are long-term assets vital to business operations and the long-term financial health of a company.
• Purchases of PP&E are a signal that management has faith in the long-term outlook and profitability of its company.

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. As a result, Exxon would be considered a capital intensive company. Some of the company's fixed assets include oil rigs and drilling equipment.

EXXON MOBIL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (millions of dollars) Sept. 30, 2018 Dec. 31, 2017 5,669 27,880 3,177 25,597 Assets Current assets Cash and cash equivalents Notes and accounts receivable - net Inventories Crude oil, products and merchandise Materials and supplies Other current assets Total current assets Investments, advances and long-term receivables Property, plant and equipment-net Other assets, including intangibles - net Total assets 14,617 4,144 1,665 53,975 40,427 249,153 11,073 354,628 12,871 4,121 1,368 47,134 39,160 252,630 9,767 348,691 Liabilities Current liabilities Notes and loans payable Accounts payable and accrued liabilities Income taxes payable Total current liabilities Long-term debt Postretirement benefits reserves Deferred income tax liabilities Long-term obligations to equity companies Other long-term obligations Total liabilities 19,413 41,714 4,161 65,288 20,624 21,448 27,084 4,625 18,728 157,797 17,930 36,796 3,045 57,771 24,406 21,132 26,893 4,774 19,215 154,191