Where to Find Capex on Financial Statements

Capital expenditures (CapEx) represent investments a company makes in long-term assets, such as property, plant, and equipment (PP&E). These expenditures are distinct from everyday operating costs because they are expected to provide economic benefits for more than one year. CapEx is a significant indicator of a company’s strategy for growth and its commitment to maintaining or expanding its operational capacity. Businesses incur these costs to acquire new assets, upgrade existing ones, or extend the useful life of their current assets. Such investments are fundamental to a company’s ability to generate future revenues and sustain its competitive position.

Locating Capital Expenditures on the Statement of Cash Flows

The most direct place to find capital expenditures is within a company’s Statement of Cash Flows. This financial statement categorizes cash movements into operating, investing, and financing activities. Capital expenditures are consistently reported under the “Investing Activities” section, detailing cash outflows and inflows related to the purchase and sale of long-term assets. Companies may use various terms to describe capital expenditures, such as “Purchases of Property, Plant, and Equipment,” “Additions to Fixed Assets,” or “Capital Expenditures.” These line items reflect the cash a company spent to acquire or improve its long-term physical assets, like building a new factory or buying machinery.

Deriving Capital Expenditures from the Balance Sheet

While the Statement of Cash Flows offers a direct view, capital expenditures can also be calculated using information from the Balance Sheet, specifically the Property, Plant, and Equipment (PP&E) line item. The balance sheet presents a company’s assets, liabilities, and equity at a specific point in time, with PP&E (including land, buildings, and machinery) reported at its cost less accumulated depreciation. To calculate CapEx, you need the beginning and ending PP&E balances, depreciation expense, and any proceeds from asset sales. The formula involves taking the current period’s PP&E balance, adding the current period’s depreciation expense, and then subtracting the prior period’s PP&E balance. Any asset disposals must also be factored into this calculation.

Additional Information in Financial Statement Notes

While primary financial statements provide summary figures, the accompanying notes, or disclosures, offer a more detailed breakdown of capital expenditures. These notes are an integral part of the financial statements, providing context and granularity not available on the main statements. Accounting Standards Codification 360 provides guidance on the presentation and disclosure of long-lived assets, including PP&E. These disclosures might elaborate on the types of assets acquired, such as machinery, buildings, or land, and can also provide a geographical breakdown of investments or detail future capital expenditure commitments. For instance, if a company has significant construction projects underway, the notes will likely provide information about the nature and scale of these projects and the associated costs.

Distinguishing Capital Expenditures from Operating Expenses

A common area of confusion arises when distinguishing capital expenditures from operating expenses. Operating expenses are the day-to-day costs incurred to run a business, such as salaries, rent, and utility bills. Unlike capital expenditures, operating expenses are fully expensed on the income statement in the period they are incurred, as their benefits are typically consumed within that same period, immediately reducing reported profit. In contrast, capital expenditures are not immediately expensed on the income statement. Instead, they are “capitalized,” meaning the cost of the asset is recorded on the balance sheet as an asset. U.S. Generally Accepted Accounting Principles (GAAP) require that costs providing future benefits beyond the current year be capitalized. The cost of a capitalized asset is then systematically allocated as an expense over its useful life through a process called depreciation. Depreciation expense, which appears on the income statement, reflects the consumption of the asset’s economic benefits over time.