More of this Feature • Part 1: Lesson 3 Main • Part 2: How to Get Statements • Part 3: What's a Balance Sheet • Part 4: Typical Balance Sheet • Part 5: Current Assets • Part 6: Receivables • Part 7: Receivable Turns • Part 8: Inventory • Part 9: Inventory Turns • Part 10: Inventory Example • Part 11: Prepaid Expenses • Part 12: Current Liabilities • Part 13: Working Capital • Part 14: WC Per Dollar of Sales • Part 15: Negative Work. Cap • Part 16: Current Ratio • Part 17: Quick Ratio • Part 18: Long Term Investment • Part 19: Property, Plant, Equip. • Part 20: Intangible Assets • Part 21: Goodwill • Part 22: Deferred Charges • Part 23: Debt, Debt to Equity • Part 24: Other Liabilities • Part 25: Minority Interest • Part 26: Shareholder Equity • Part 27: Book Value • Part 28: Com. & Pref. Shares • Part 29: Cap. Surplus, Reserve • Part 30: Treasury Stock • Part 31: Retained Earnings • Part 32: Formula & Calculations • Part 33: Putting it all Together • Part 34: Segment 2

Related Resources • Investing Lesson 1 • Investing Lesson 2 • Investing Lesson 3 • More Investing Lessons

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Property, Plant and Equipment

These are referred to as "fixed assets".  In other words, these are the corporation's real estate, buildings, office furniture, telephones, cafeteria trays, brooms, factories, etc.  They are the physical assets the company owns but can't quickly convert to cash.

Depending on the type of business, these may or may not make up a large percentage of the total assets.  Most of the assets of a railroad or airline will fall into this category (these companies must continue to buy railroad cars and planes to survive - both of which are fixed assets).  An advertising agency on the other hand, will have far fewer fixed assets.  They require nothing but their employees, some pencils, and a few computers.

You must be careful not to pay too much attention to this number.  Since companies are often unable to sell their fixed assets within any reasonable amount of time (who would be willing to buy 3 notebook binders, a factory, the broom in the broom closet, etc. at a moment's notice?) they are carried on the balance sheet at cost regardless of their actual value.  It is possible for companies to grossly inflate this number (which is called "watering" the stock), or to write the values down to nothing (some companies have $1 million dollar buildings carried for $1 on the balance sheet). 

When analyzing a balance sheet, you will want to look at this number with a raised eyebrow.  Don't completely ignore it (that would be foolish), but certainly don't take it too seriously.
 

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