How to Estimate Capital Expenditure
Capital expenditures for a business are funds spent on anything that might produce revenue in the future. This can include equipment, new facilities, the development of new software or any purchase of an asset. You can estimate capital expenditures for a company by using figures from the balance sheet. Do all of the calculations in order, and you will have a very good estimate of capital expenditures for any given period of years. You can also learn to identify capital expenditures that represent growth instead of maintenance.
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Instructions
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1
Check the company balance sheet for total assets. This is the sum total of the value of all assets in the company. Average the previous nine years' assets. Compare current to the average of the previous 10 years' assets. Write down the increase in assets over the decade.
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2
Find the company's total debt. This figure is also listed on the balance sheet. This indicates borrowed money, but it does not tell you what the money was spent on. Average the previous nine years' debt. Compare the current debt level to the average of the previous years. Write down the 10-year change in debt.
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3
Subtract the change in debt from the change in assets. This is the amount of money the company spent in cash on assets over a period of ten years. It is called the capital expenditure figure, or CAPEX.
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Compare current year's CAPEX to previous years' CAPEX. If expenditures for assets have not grown significantly, the company is merely maintaining itself. True growth comes from an increase in capital expenditures over time.
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Tips & Warnings
The reason you should calculate the current year's CAPEX and compare it to the previous nine years is that you can see if the current year is a break from the trend or a continuation of it. If you simply average ten years of CAPEX, you may not catch the current change in expenditures.
