How to Find Capital Expenditures (CapEx)

Capital expenditures (CapEx) are funds a business uses to acquire, maintain, or upgrade long-term physical assets like property, buildings, machinery, equipment, and technology systems. These investments are fundamental to a company’s financial strategy, providing benefits and generating revenue over several years, and are crucial for sustained growth and operational capacity.

Understanding Capital Expenditures

Capital expenditures differ from routine operating expenses in their nature and accounting treatment. Operating expenses, or OpEx, are the day-to-day costs necessary to run a business, such as salaries, rent, utilities, and office supplies. These are typically consumed within one year and are fully tax-deductible in the year they occur, appearing directly on the income statement. In contrast, CapEx involves larger, often one-time purchases of assets that have a useful life extending beyond one year.

When a company incurs a capital expenditure, the cost is not immediately expensed on the income statement. Instead, it is “capitalized,” recorded as an asset on the balance sheet. This aligns the expense with the asset’s long-term economic benefits. The cost is then systematically allocated over its useful life through depreciation, a non-cash expense appearing on the income statement. Businesses make capital expenditures to expand operations, replace aging equipment, improve efficiency, comply with regulations, or develop new products and services.

Where to Find Capital Expenditures

The most direct place to find CapEx is on the Cash Flow Statement, within the “Investing Activities” section. This section reports cash flows related to the purchase and sale of long-term assets. CapEx is typically listed as “Purchases of Property, Plant, and Equipment” or similar line items like “capital spending” or “additions to property and equipment,” appearing as a cash outflow.

Detailed breakdowns of a company’s property, plant, and equipment (PP&E) additions and disposals, which include capital expenditures, are often found in the notes to the financial statements. These notes provide supplementary information that elaborates on the figures presented in the main financial statements. They can offer a more granular view of the types of assets acquired or sold during the period.

While not a direct source, the Balance Sheet can indirectly indicate capital expenditures. The “Property, Plant, and Equipment” (PP&E) line item on the balance sheet reflects the net value of a company’s long-term tangible assets. By comparing the PP&E balance from one period to the next and considering the depreciation expense reported on the income statement, one can infer the amount of capital expenditures. An increase in net PP&E, after accounting for depreciation, suggests new capital investments have been made.

How to Calculate Capital Expenditures

When capital expenditures are not explicitly stated, they can be calculated using information from the balance sheet and income statement. The formula for this indirect calculation is:

CapEx = (Current Period PP&E – Prior Period PP&E) + Current Period Depreciation

To apply this formula, locate the “Property, Plant, and Equipment” (PP&E) line item on the company’s balance sheet for the current reporting period and the prior period. This represents the net book value of the company’s fixed assets. Next, find the “Depreciation Expense” for the current period, which is typically reported on the income statement or sometimes within the operating activities section of the cash flow statement.

For example, if a company’s PP&E was $100 million in the prior period and $110 million in the current period, and its current period depreciation expense was $8 million, the calculation would be: ($110 million – $100 million) + $8 million = $18 million. This $18 million represents the capital expenditures for the period. This calculation essentially adds back the depreciation that reduced the asset’s value to determine the actual cash outlay for new assets.

Making Sense of Capital Expenditure Data

Analyzing capital expenditure data provides insights into a company’s strategic direction and operational health. High levels of CapEx often indicate a company is investing significantly in its future, signaling growth, expansion, or a push for technological advancement. This could mean building new facilities, acquiring new machinery, or upgrading existing infrastructure to increase production capacity or improve efficiency. Such investments suggest confidence in future demand and a commitment to maintaining a competitive edge.

Conversely, consistently low or declining capital expenditures might suggest several things. It could mean a company is in a mature phase with less need for new asset acquisition, or it might indicate an asset-light business model. However, it could also signal underinvestment in maintaining or upgrading assets, which might negatively impact future operational capabilities or competitiveness.

Comparing CapEx to depreciation is also informative. Ideally, capital expenditures should at least cover depreciation to maintain the existing asset base. If CapEx is consistently less than depreciation, it may suggest the company is not replacing assets adequately, leading to a shrinking asset base over time. Analyzing CapEx trends over time, relative to industry peers and competitors, provides a comprehensive understanding of a company’s investment strategy and its long-term performance.