Assets - Fixed Asset Disclosures

The disclosure found in a company's footnote section of its financial statements provides useful information about the age and possible usefulness of the assets held by the company. Using the information contained in the footnote, an analyst can estimate the total age of the assets held by a company.

There are three ways to estimate the average age of a company's fixed assets:

  1. Average age = accumulated depreciation / current depreciation expense = X years
  2. Relative age = accumulated depreciation / ending gross investment = % of age
  3. Average depreciable life = ending gross investment / depreciation expense
Look Out!

Note: All these estimations are affected by what is included in fixed assets (asset mix). Relative age can be used only when the assets analyzed use a straight-line depreciation method.

Though not accurate, the estimated average age of a company's fixed assets is useful and allows an analyst to:

  • Estimate if the company has old assets and will need to invest heavily in new equipment in the near future. If that is the case, the company would be currently reporting an overstated net income that is not reflective of future profitability.
  • Reveal whether a company is losing its competitive advantage compared to another company that has invested heavily in new technology.
Asset Impairment


Related Articles
  1. Options & Futures

    Financial Statements: Long-Lived Assets

    By David Harper (Contact David)In the preceding section, we examined working capital, which refers to the current assets and liabilities of a company. In this section, we take a closer look at ...
  2. Investing

    What's a Fixed Asset?

    Fixed assets are tangible property that a business uses in the process of producing income. To qualify as a fixed asset, the item cannot be consumed or sold in less than a year. Fixed assets ...
  3. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  4. Term

    Explaining the Declining Balance Method

    The declining balance method is a system for calculating an asset’s rate of depreciation against its non-depreciated balance.
  5. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  6. Forex Education

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  7. Retirement

    Raising The Retirement Age: 5 Countries Testing The Waters

    Many countries are raising the retirement ages for their citizens. Find out what this means to you.
  8. Investing

    Understanding Accumulated Depreciation

    Depreciation is a rough approximation, in dollar terms, of the wear and tear on an asset. So the accumulated depreciation is the aggregate of the wear and tear on the asset from all prior time ...
  9. Economics

    Double Declining Balance Depreciation Method

    The double declining balance depreciation method counts the depreciation of a long-lived asset’s book value at double the rate of its straight-line depreciation.
  10. Investing Basics

    What's an Asset?

    An asset is a resource with economic value.
RELATED TERMS
  1. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  2. Retirement Method of Depreciation ...

    An accounting procedure in which an asset is expensed for depreciation ...
  3. Net Investment

    The amount spent by a company or an economy on capital assets, ...
  4. Depreciated Cost

    1. The value of an asset net of all accumulated depreciation ...
  5. Annuity Method Of Depreciation

    A method of depreciation centered around cost recovery and a ...
  6. Placed In Service

    The point in time when an asset that can be depreciated is first ...
RELATED FAQS
  1. What would cause a decrease in accumulated depreciation?

    Understand what causes a decrease in a company's accumulated depreciation. Learn why a company's accumulated depreciation ... Read Answer >>
  2. What is the tax impact of calculating depreciation?

    Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
  3. Why does accumulated depreciation have a credit balance on the balance sheet?

    Wonder why accumulated depreciation is a credit account, despite residing on the asset side of the balance sheet? Why not ... Read Answer >>
  4. Are noncurrent assets depreciated?

    Learn about depreciation, why noncurrent assets are depreciated and how to calculate depreciation expenses using a straight-line ... Read Answer >>
  5. What are some examples of fixed assets?

    Learn the difference between fixed tangible assets and fixed intangible assets, and review examples of these two types of ... Read Answer >>
  6. What are the disadvantages of using the sinking fund method to depreciate an asset?

    Learn what the sinking fund method of depreciation is, why a company might choose to use it and what the disadvantages are ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center