Financial Accounting: In an Economic Context

THE RELATIVE SIZE OF LONG-LIVED ASSETS

As Figure 9-1 illustrates, investments in noncurrent assets tend to be large for services, manufacturers, and retailers, and relatively small for Internet firms and financial institutions. Services like AT&T must constantly invest in new technology, and restaurant services like Wendy's/Arby's continually add and update facilities. Retailers invest heavily in stores (Kroger and Lowe's), while natural resource production (Chevron) relies heavily on property, plant, and equipment. The relative size of the facilities for financial institutions is swamped by investments in securities and loans, and the financial subsidiary of GE (GE Capital), with its large balance of receivables, dilutes the importance of property, plant, and equipment as a percentage of total assets. The main infrastructure for Internet firms (Yahoo and Cisco) is largely electronic, not “bricks and mortar.”

FIGURE 9-1 Property, plant, and equipment plus intangibles as a percentage of total assets

Chevron, Yahoo!, and Goldman Sachs are three well-known U.S. companies—one a major manufacturer, one an Internet company, and one a financial institution. Rank them in terms of how important fixed asset accounting is to their financial statements. Briefly explain.