Fixed AssetsFinancial Statements
Fixed assets are assets that won’t be converted to cash within one year. This usually indicates assets that are used for the production of goods or services. They are typically not used to pay off current liabilities unless it’s an emergency. Fixed assets consist of two separate sections, the first is Tangible Fixed Assets, and the second is Intangible Fixed Assets.
Tangible Fixed Assets
Tangible Assets are assets that can be touched and are kept long term. You can consider property, certain investments, land, or buildings as fixed assets.
Plant, Property, and Equipment consist of the buildings, land, and equipment used to create products and deliver services. The important thing to note is that land does not depreciate, but buildings and equipment do. Buildings and equipment must be maintained, upgraded, or replaced, which absorbs capital.
You should seek out companies that are in industries that do not require a constant expenditure of capital on plant property and equipment. Companies often have laid out large expenditures on PP&E to remain competitive in certain industries. This keeps them up to pace with their competition, which is constantly upgrading to stay ahead in terms of quality or technological ability. A competitive game of constant catch-up will result in firm’s earnings being hindered by expenses. The best investments don’t have to spend capital on PP&E often and can upgrade these as they wear out. The worst scenario possible is companies which are financially forced to purchase goods on credit to upgrade PP&E to keep up to competitors. This absorbs capital which could be spent expanding marketing, or other expenses directly related to boosting profit.
Buildings and equipment lose function over time and eventually lose all production ability. This is represented on the balance sheet by depreciation. Depreciation logs the estimated, not actual, loss of function and value for plant, property, and equipment. This is subtracted from the combined value of PP&E.
Net Equipment is the total value of Plant, Property, and Equipment after depreciation has been subtracted from their values. This category is not always shown on statements and may require manual calculation.
Long Term Investments are assets that exceed one year for maturity or financial growth. This includes the investments in subsidiaries and affiliated companies. It is important to note that the asset value is listed on the books based on one of two values: Market Price or Actual Cost, whichever of these is lower. This value cannot be raised if an increase in value occurs. When sold, the asset’s gain will be marked as a “gain on investment” and the marked book value will remain as the baseline price. If a company actually lists its investments and this section is a large number, look at the financial statements of the company’s investments and see how wise their selection is. They should be investing in companies that have solid financial records and are doing solid jobs of defending or acquiring more market share.
Total Tangible Fixed Assets
This section shows the total accumulation of all fixed assets owned by the company. This category will later be added to Total Intangible Fixed Assets to calculate Total Fixed Assets.
Intangible Fixed Assets
Intangible fixed assets consist of Goodwill and may have another heading for “Other Intangible Assets.”
When firms make acquisitions they often pay well over company valuation to “Sweeten the deal” for the other party. The amount paid in excess of the actual value of the firm being acquired is “goodwill”. This compensates for the loss of future profits for the company being purchased. Increases in goodwill occur when a company is buying out other firms in part or in whole. Much like long term investments, this is good if they’re buying out companies that have solid financials and are acquiring market share, or defending well in competitive markets. You should attempt to identify which companies they’re acquiring. Once you’ve found them, determine how much they’re paying for the firm versus its valuation. It is always wise to ensure that the firm isn’t paying large amounts of goodwill for a bad deal in the long run.
Other Intangible Assets
Other Intangible Assets often lists the estimated value of intellectual property. The key word is estimated. This includes many categories including trademarks, copyrights, brand names, franchises, and patents. The most important note is that the company cannot create these values themselves! All values must be created by third parties and then listed on balance sheet at the value estimated externally. Other Intangible Assets with a time limit on their values, like patents, will be steadily decreased in value over the course of their lifespan. If you are looking at a company which has profits strongly tied to its intellectual property (copyrights, trademarks, patents, or branding), you should identify the lifespan of the intellectual property protection. You don’t want to purchase a firm which has profit tied to being the only firm allowed to build a product due to intellectual property protection, only to find out the patent protection ends next year!
Total Intangible Fixed Assets
Total Intangible Fixed Assets represent the value of all intangible assets. This is combined with Total Tangible Fixed Assets to acquire Total Fixed Assets.
Total Assets represent the combined value of Current Assets, Tangible Fixed Assets, and Intangible Fixed Assets. Total Assets must match Current Liabilities plus Shareholder’s Equity.
Did we help you? Vote with a Crypto-Donation!
Donate Bitcoin Cash
International Economic Analysis:
- Major Currency Economic Summaries
- Performance of Major Imports and Exports
- Mandates of Central Banks versus Expectations
- Performance Indexes of Major Economies
- Economically Correlated Currency Projections
- Large Funds Currency Sentiment Readings
- List of Technical Indicators to Look For
- Occasional: Foregin Exchange Technicals Markups
American Markets Analysis:
- Summaries of American Economic Structure
- Performance of Major
- Federal Reserve Mandate versus Expectations
- Performance Indexes of U.S Economy
- Economically Correlated U.S Dollar Projections
- Large Trading Fund Index Sentiment Readings
- Market Wide Earnings Versus Valuations
- Fundamental Ranking of U.S Business Sectors
- Best and Worst Future Consensus Estimates
- Occasional: Firm Fundamental Strength Report
- List of Technicals to Look for While Trading
Investment and Finance, Serviced by Amazon
No Results Found
The page you requested could not be found. Try refining your search, or use the navigation above to locate the post.