Definition:
Gross Property, Plant & Equipment (Gross PP&E) refers to the total value of a company's physical, long-term assets before accounting for depreciation. These assets include land, buildings, machinery, vehicles, and equipment that are used in the production of goods and services.
Examples
Examples of Gross PP&E include a manufacturing company's factory buildings, machinery used in production, delivery trucks, and office buildings.
Formula:
Gross PP&E = Total Cost of Property + Total Cost of Plant + Total Cost of Equipment
How to use the metric:
Gross PP&E is used to assess the scale of a company's investment in physical assets. It provides insight into the company's capacity for production and operational capabilities. Investors and analysts use this metric to evaluate the capital intensity of a business and its potential for generating revenue.
Limitations:
One limitation of Gross PP&E is that it does not account for depreciation, which can overstate the value of older assets. Additionally, it does not reflect the current market value of the assets, as it is based on historical cost. This metric also does not provide insight into the efficiency or productivity of the assets.
Applies to:
Gross PP&E is most applicable to capital-intensive industries such as manufacturing, utilities, transportation, and construction, where significant investments in physical assets are required for operations.
Doesn't apply to:
This metric is less relevant for service-oriented industries such as software, consulting, and finance, where intangible assets and human capital are more critical to operations. These industries typically have lower levels of physical asset investment.
Summary:
Gross Property, Plant & Equipment is a financial metric that represents the total value of a company's physical assets before depreciation. It is useful for assessing the scale of investment in physical assets and is most applicable to capital-intensive industries. However, it does not account for asset depreciation or current market value, limiting its effectiveness in evaluating asset efficiency or productivity.
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Financial data provided by FactSet is standardized for consistency across companies, industries, and countries. Results may differ from original reports due to adjustments based on global accounting standards and methodologies.