"The way I see it, a crane sitting rusting in a depot has PP&E...

"The way I see it, a crane sitting rusting in a depot has PP&E value of zero"

See, that's where you and I differ. If someone woke me up tomorrow and said "Happy Birthday, Adam, your birthday present is a shed full of cranes of various shapes, hues and ages", I would very promptly thank him or her for that with a very, very wide smile.

You, on the other hand, would seemingly be ambivalent about the gift (or "non-gift", evidently).

For even if I didn't like cranes, or had no use for them, I could at least sell them and buy something I really like with the proceeds. Or, failing that I could pledge them as security in order to source capital for some or other enjoyable or productive purpose.

You, by contrast, would act at odds with what most self-respecting capitalists would do, in that you would wilfully forego such monetisation potential that those contingent assets represent.

Are you absolutely certain about that?


"...I would caution you not to get too bogged down in accounting theory and concepts because in the real world (of stock market valuation) pays scant regard to that BS."

I'm afraid it's more fundamental economic arithmetic than it is accounting theory and concepts, and it's as axiomatic as raising $100 at a cost of capital of 10%, and then re-investing that $100 at a rate that exceeds, matches, or falls short of the cost of that capital.

As sure as night follows day, the value of that starting capital respectively appreciates, remains the same or depreciates accordingly.

And unfortunately for us novice investment practitioners, the real world (of stock market valuation) pays far more than scant valuation to that BS, it actually lives it out.

Just because we don't "see" it or deal with it on a daily basis, doesn't mean it isn't the backbone of investment theory.

Try proving it for yourself:
Take the stocks in the ASX200 (or 300, or whatever universe of listed securities you care to study).

Plot a scattergram of data representing:
a) on the X-Axis, ROE, and
b) on the Y-Axis, Price-to-Book values

What you'll find a very close positive correlation between these two variables.

And that, unobserved by many unwitting stock market participants, is how listed equity is valued and priced.

PS. Of course, you'll see some outliers - like BOL - which will appear many standard deviations away from the main "cloud" of the data points, for that is the manifestation of some of the inefficiencies inherent in capital markets (and is what creates the investment opportunities, both on the long and the short side)