When Assets Age: How Capital Spending and Depreciation Reveal Asset Performance and Risk.

Damaris Valencia

Co-Presenters: Nina Lojano

College: College of Business and Public Management

Major: BS.ACCOUNTING

Faculty Research Mentor: Jinqiu Yan  

Abstract:

In capital intensive industries, plant assets constitute a substantial portion of total resources and play a central role in shaping operational efficiency and financial outcomes. This study examines the relationship between capital expenditure (CapEx) trends, depreciation practices, and asset performance using financial data from four capital intensive firms Delta Air Lines, Duke Energy, Exxon Mobile and Caterpillar. By analyzing publicly available information from annual 10-K filings and management discussion and analysis over a five to seven year period, the research evaluates how investment and depreciation decisions influence fixed-asset turnover and profitability.The analysis focuses on key financial measures, including gross and net property, plant, and equipment (PPE), depreciation expense, capital expenditures, and impairment charges. Fixed-asset turnover is used as an indicator of asset productivity, while trends in CapEx relative to depreciation are examined to assess whether firms are adequately reinvesting in their asset base. Special attention is given to identifying financial patterns preceding asset impairments.The anticipated results suggest that prolonged periods in which CapEx remains below depreciation are associated with an aging asset base and declining asset efficiency. Furthermore, sustained decreases in fixed-asset turnover, revenue contraction, or negative operating cash flows may serve as early warning signals of future impairment recognition. Overall, the study provides a practical approach for evaluating asset conditions and identifying potential impairment risks using commonly disclosed financial data.Keywords: Plant Assets, Capital Expenditures, Depreciation, Fixed-Asset Turnover, Asset Impairment