Analysis of Property, Plant and Equipment
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McKesson Corp. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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Property, Plant and Equipment Disclosure
McKesson Corp., balance sheet: property, plant and equipment
US$ in millions
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
- Land
- The value of land exhibited an overall upward trend from 2011 to 2016. Starting at $70 million in 2011, it experienced a decline in 2012 to $68 million, followed by a substantial increase reaching a peak of $228 million in 2016. Notably, there was a significant jump between 2012 and 2014, more than tripling in value during that period.
- Building, Machinery, Equipment and Other
- This category showed steady growth throughout the six-year period. Beginning at $1,973 million in 2011, the value consistently increased year-over-year, reaching $3,556 million by 2016. The most pronounced increase occurred between 2013 and 2014, when the value rose by $780 million, indicating considerable investment or asset acquisition during that time.
- Property, Plant and Equipment, Gross
- The gross property, plant, and equipment reflected a trend similar to its individual components, increasing from $2,043 million in 2011 to $3,784 million in 2016. The largest annual increase occurred between 2013 and 2014, with a rise of $872 million. This upward trend suggests continuous asset expansion or capitalization over the period.
- Accumulated Depreciation
- Accumulated depreciation increased in absolute terms from -$1,052 million in 2011 to -$1,506 million in 2016, indicating ongoing depreciation expense recognition over time. An anomaly was observed between 2013 and 2014, where accumulated depreciation decreased slightly from -$1,208 million to -$1,179 million, possibly due to asset write-offs or revaluation adjustments.
- Property, Plant and Equipment, Net
- Net property, plant, and equipment demonstrated a generally positive trend over the period, rising from $991 million in 2011 to $2,278 million in 2016. There was a significant jump between 2013 and 2014, climbing from $1,321 million to $2,222 million. However, a decline was noted in 2015 when net assets decreased to $2,045 million before recovering in 2016. This pattern indicates substantial capital investment offset partially by depreciation or disposals during the period.
Asset Age Ratios (Summary)
McKesson Corp., asset age ratios
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
- Average Age Ratio
- The average age ratio demonstrates a fluctuating trend over the periods analyzed. Starting at 53.32% in 2011, it slightly increased to 53.73% in 2012 before undergoing a notable decline to 50.33% in 2013 and further dropping significantly to 37.08% in 2014. This downward trend partially reversed in the subsequent years, rising to 43.22% in 2015 and slightly decreasing to 42.35% in 2016. Overall, the ratio indicates a reduction in the relative age of the property, plant, and equipment from 2011 to 2014, followed by a moderate increase afterward.
- Estimated Total Useful Life
- The estimated total useful life of the assets has varied over the six-year period. It began at 14 years in 2011, incrementally increased to 15 years in 2012 and 16 years in 2013, reaching its peak of 17 years in 2014. However, this was followed by a sharp decrease to 11 years in 2015, then a partial recovery to 13 years in 2016. This fluctuation suggests changes in asset composition, asset management policies, or revaluation of asset lifespans during the timeframe.
- Estimated Age (Time Elapsed Since Purchase)
- The estimated age of the assets remained stable at 8 years from 2011 through 2013, before decreasing to 6 years in 2014 and then further to 5 years in both 2015 and 2016. This decline implies that the assets were either renewed, replaced, or new additions to the asset base were relatively younger in the latter years, resulting in a younger overall asset age.
- Estimated Remaining Life
- The estimated remaining life showed an increasing trend between 2011 and 2014, moving from 7 years initially to 8 years in 2013 and sharply up to 11 years in 2014. Thereafter, it decreased to 6 years in 2015 but rose again to 7 years in 2016. This pattern indicates that despite fluctuations, there was an extended expected usability of the assets around 2014, possibly reflecting asset renewals or upgrades, with some variability in later years.
Average Age
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
2016 Calculations
1 Average age = 100 × Accumulated depreciation ÷ (Property, plant and equipment, gross – Land)
= 100 × ÷ ( – ) =
- Property, Plant and Equipment - Gross
- The gross value of property, plant, and equipment exhibits a consistent upward trend over the six-year period, increasing from $2,043 million in 2011 to $3,784 million in 2016. This growth suggests ongoing investments and asset acquisitions, with a significant jump noted between 2013 and 2014.
- Accumulated Depreciation
- Accumulated depreciation also rises steadily from $1,052 million in 2011 to $1,506 million in 2016. The increase generally aligns with the growth in gross property, plant, and equipment, reflecting the aging and usage of assets over time. Notably, there is a slight dip in 2014 relative to the previous year, which may indicate asset disposals or revisions in depreciation estimates during that period.
- Land
- The value attributed to land grows from $70 million in 2011 to $228 million in 2016, peaking at $221 million in 2014. The fluctuation between 2012 and 2013 suggests acquisitions or revaluation activities concerning land assets, followed by stabilization and moderate growth afterwards.
- Average Age Ratio
- The average age ratio, representing the proportionate age of the asset base, decreases significantly from 53.32% in 2011 to a low of 37.08% in 2014, indicating a younger asset base likely due to recent capital expenditures or asset renewals. After 2014, the ratio slightly increases to 42.35% by 2016, suggesting some aging of the asset base but still maintaining a relatively refreshed profile compared to earlier years.
Estimated Total Useful Life
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
2016 Calculations
1 Estimated total useful life = (Property, plant and equipment, gross – Land) ÷ Depreciation expense
= ( – ) ÷ =
- Property, plant and equipment, gross
- The gross value of property, plant, and equipment demonstrated a consistent upward trend over the six-year period. It increased from 2,043 million US dollars in 2011 to 3,784 million US dollars in 2016. This reflects a substantial cumulative growth, indicating ongoing investment in fixed assets and expansion of the operational base.
- Land
- The value attributed to land showed variability, starting at 70 million US dollars in 2011. It decreased slightly to 68 million in 2012, then increased sharply to 129 million in 2013, followed by another significant rise to 221 million in 2014. After a minor decline to 207 million in 2015, the value rose again to 228 million in 2016. Overall, the trend indicates a net increase in land holdings, with fluctuations possibly tied to acquisition and sale activities or revaluation.
- Depreciation expense
- Depreciation expense remained relatively stable from 2011 to 2013, with values ranging from 139 to 146 million US dollars. From 2014 onwards, there was a marked jump to 186 million, then a sharp increase to 306 million in 2015, before a slight decrease to 281 million in 2016. This upward movement in depreciation expense reflects increased capital investments in prior years and potentially shorter asset useful lives, leading to accelerated expense recognition.
- Estimated total useful life
- The estimated total useful life of property, plant, and equipment showed variation throughout the period. Beginning at 14 years in 2011, it increased incrementally to reach 17 years by 2014. Then, there was a notable drop to 11 years in 2015, followed by a rise to 13 years in 2016. This fluctuation may indicate changes in asset composition, accounting policy adjustments, or re-assessments of asset longevity, notably the sharp decline in 2015 suggesting more conservative estimates during that year.
Estimated Age, Time Elapsed since Purchase
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
2016 Calculations
1 Time elapsed since purchase = Accumulated depreciation ÷ Depreciation expense
= ÷ =
- Accumulated Depreciation
- The accumulated depreciation shows a consistent upward trend over the analyzed years, increasing from 1,052 million USD in 2011 to 1,506 million USD in 2016. This gradual increase reflects ongoing depreciation of property, plant, and equipment assets, indicating sustained utilization and aging of these assets over time.
- Depreciation Expense
- The depreciation expense remained relatively stable from 2011 through 2013, fluctuating slightly between 139 and 146 million USD. However, a notable increase occurred between 2013 and 2015, with depreciation expense rising sharply to 306 million USD in 2015, followed by a slight decrease to 281 million USD in 2016. This pattern suggests a period of increased asset write-downs or acquisitions of substantial assets that led to higher annual depreciation charges during these years.
- Time Elapsed Since Purchase
- The average time elapsed since purchase for the assets decreased from 8 years in 2011-2013 to 6 years in 2014 and then further to 5 years in 2015 and 2016. This decline indicates a younger asset base in the later years, which may be due to significant asset replacements or acquisitions, aligning with the increase in depreciation expense observed in the same period.
- Overall Insights
- The data collectively indicates that McKesson Corp. has been actively renewing or acquiring property, plant, and equipment assets, as evidenced by a younger average asset age and a spike in depreciation expense post-2013. The steady rise in accumulated depreciation aligns with this, reflecting an expanding asset base undergoing depreciation. The decreased average asset age together with the increased depreciation expense suggests strategic asset investments or upgrades, impacting the company's fixed asset management and associated expenses.
Estimated Remaining Life
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
2016 Calculations
1 Estimated remaining life = (Property, plant and equipment, net – Land) ÷ Depreciation expense
= ( – ) ÷ =
- Property, Plant and Equipment, Net
- There is a general upward trend in the net value of property, plant, and equipment from 2011 to 2016. The net value increased from $991 million in 2011 to $2,278 million in 2016, representing more than a two-fold increase over the period. A notable surge occurred between 2013 and 2014, where the net value rose sharply from $1,321 million to $2,222 million. Following a slight decline in 2015, the value rebounded in 2016.
- Land
- The value of land shows variability but generally an increasing trend over the period. Starting at $70 million in 2011, the value fluctuated but significantly increased by 2014 to $221 million. After a modest decrease in 2015, the land value rose again to $228 million in 2016. This suggests ongoing acquisition or valuation adjustments of land assets during the timeframe.
- Depreciation Expense
- Depreciation expense remained relatively stable from 2011 to 2013, ranging between $139 million and $146 million. However, a substantial increase occurred in 2014, with depreciation expense rising to $186 million and peaking at $306 million in 2015. The expense then declined slightly to $281 million in 2016. This pattern can be linked to the asset base growth, as higher net property, plant, and equipment values usually lead to increased depreciation charges.
- Estimated Remaining Life
- The estimated remaining life of property, plant, and equipment displayed fluctuations throughout the period. It remained steady at 7 years during 2011 and 2012, increased to 8 and 11 years in 2013 and 2014 respectively, then sharply declined to 6 years in 2015 before increasing again to 7 years in 2016. These changes might indicate shifts in asset mix, acquisition of new assets with different useful lives, or re-assessment of asset longevity.