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Property, plant and equipment

Land, buildings, machinery and vehicles the company uses to operate, carried at purchase cost less accumulated depreciation.

PP&E grows through capex and shrinks through depreciation-accounting and disposals. The ratio of accumulated depreciation to gross cost tells you how old the asset base is: a heavily depreciated base often means a capex catch-up is coming.

For capital-intensive businesses, PP&E is most of invested-capital and therefore most of the denominator in return-on-invested-capital. A company earning 6% on a large PP&E base is not earning its wacc.

Example: Northwind Tools reports $520M net PP&E: $1,040M of gross cost less $520M of accumulated depreciation. With $75M of annual capex against $64M of depreciation, the base is growing slowly.

Related: capex, invested-capital, non-current-assets, maintenance-capex

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