Fixed assets (Property, Plant, & Equipment — PP&E) are long-term tangible assets used in business operations over multiple years. They are capitalized on the balance sheet and depreciated over their useful lives. Distinct from current assets like cash, inventory, and receivables.
Fixed assets are the long-lived physical infrastructure of a business: land (not depreciated), buildings, manufacturing equipment, vehicles, computers, furniture, and leasehold improvements. 'Fixed' means they are not intended for sale in the ordinary course of business — they support operations rather than being inventory. Under GAAP, PP&E is recorded at historical cost (purchase price + installation + all costs to bring the asset to useful condition). The accounting lifecycle: at purchase, the asset is capitalized (recorded as an asset, not expensed). Over time, depreciation expense reduces the asset's carrying value on the balance sheet (net of accumulated depreciation = 'net book value'). When the asset is sold or retired, the gain or loss on disposal is recognized. Capital expenditures (capex) — spending on new or upgraded fixed assets — appear on the cash flow statement as an investing activity. For tax purposes, PP&E is depreciated using MACRS (Modified Accelerated Cost Recovery System), which front-loads depreciation for faster tax deductions. Businesses can also elect Section 179 expensing (immediate full deduction up to the annual limit) or bonus depreciation (additional first-year percentage) for qualifying property. These tax provisions are a significant reason equipment financing is popular — the depreciation deductions can offset a substantial portion of the acquisition cost. Lenders view PP&E as the primary collateral pool for equipment loans, commercial real estate loans, and asset-based facilities. The appraised orderly liquidation value (OLV) of PP&E is typically 50-70% of book value for most equipment types.
Current assets are expected to be converted to cash or used within 12 months (cash, accounts receivable, inventory, prepaid expenses). Fixed assets are used over multiple years in operations and are not intended for sale (equipment, buildings, vehicles). The distinction affects how they're reported on the balance sheet and how lenders assess liquidity.
Land is not depreciated because it has an indefinite useful life — land doesn't wear out. Unlike buildings, equipment, or vehicles that physically deteriorate and lose utility over time, land theoretically retains its usefulness indefinitely. Only the improvements on land (buildings, paving, landscaping) are depreciated.
Substantial PP&E strengthens collateral position — lenders can secure loans against equipment and real estate. High PP&E relative to debt suggests a capital-intensive business with tangible assets backing borrowings. However, high capex requirements also consume cash flow. Lenders examine PP&E in the context of the overall balance sheet and cash flow generation.
Capital expenditures (capex) are the cash outflows to purchase, improve, or replace PP&E. PP&E is the balance sheet account that accumulates the capitalized value of those purchases (net of depreciation). Capex appears on the cash flow statement (investing activities); PP&E is the resulting asset on the balance sheet.