What is the Formula to Calculate Capital Expenditure (CapEx)?
I'm trying to get the cash flow statement from IS and BS. How can I calculate the CapEx from the other two financial statements?
What is Capital Expenditure?
Capital expenditure represents the purchase or improvement of physical assets such as land, buildings, and equipment. These assets must have a useful life greater than one year. Capital expenditures are added to the Property, Plant, and Equipment line item on the Balance sheet.
How to Calculate Capital Expenditure (Capex)
Capex = New PPE - Old PPE + Depreciation Expense
The first step to calculating capital expenditure is to look at the change to property plant and equipment between balance sheet period one and two. After looking at this net PPE (property, plant, and equipment) figure, you can add back the depreciation from the period on the income statement to find the capital expenditure of the period.
Capex = New PPE+ New Intangible asset - Old PPE - Old Intangible Asset + Depreciation & Amortization
The above equation can be used to find capital expenditure if depreciation and amortization are consolidated into one line item.
How to Use the Capital Expenditure Formula without the Income Statement or Statement of Cash Flows
Capex = New PPE - Old PPE + (New Accumulated Depreciation - Old Accumulated Depreciation)
If you are only given the new and old balance sheet you can still calculate the capital expenditure as long as there is an accumulated depreciation line item reported on the balance sheet.
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this is only possible if the IS has the depreciation expense broken down separately and you have this period/previous period's BS.
New PPE=Old PPE + CapEx - Depreciation. You'd get old and new PPE from the BS and then get Depreciation from the IS, leaving you with CapEx.
Thank you!! I'm only given the balance sheet and income statement. and there is only one line item called: depreciation and amortization.
Should I calculated it as: New PPE+ New Intangible asset = old ppe + old intangible asset + CapEx - Depreciation & Amortization??
Spot-on kidflash
The above is correct.
If depreciation isn't broken out in the IS there will probably be a valuation account called "accumulated depreciation" on the BS. The change in that account will also give you the depreciation expense for the period.
Note that even if depreciation is not listed on the IC or able to be backed into via accumulated depreciation on the BS, check the companies 10-K filings as sometimes it is provided in the text or footnotes.
im only given the IS and BS, and there is no accumulated depreciation. PP&E on BS is reported as Net PP&E...
You can back into it then. Net PPE simply means PPE less (i.e. net) of depreciation. It is just combining the PPE and accumualted depreciation accounts into a single one. To determine depreciation for a year, simply take the Current Net PP&E figure less previous year's Net PPE figure plus new CapEx (on BS) for the year. The resulting figure is annual depreciation expense.
CapEx = Change in gross PPE = Change in net PPE + Change in accumulated depreciation
If you are trying to calculated FCF, you can just use the change in net PPE and not add back depreciation.
thanks! the problem is depreciation is not reported seperately.. there is only one line item called: Depr and amortization... and I cant check the company's 10k/q since im only given the income statement and balancesheet to calculate the CF statement..
Goblan: i know the calculation of CapEx but i want to know the reason about why should we add change in depreciation to the capex. Also if we are doing valuation by using DCF approach and in calculation of fcf for CapEx we should only take the change in Net PPE and should not add depreciation into it.
FYI this is only true if there are no sales or disposals of PP&E. If you get rid of a PP&E asset, it's respective accumulated depreciation will be removed from the accumulated depreciation account on the BS. The only way to get a clean depreciation expense number from only BS and IS is if you assume no sale or disposal of PP&E.
Net PPE y1 = Net PPE y0 +Capex - Sale of Assets - Depr Sale of Assets is usally reported in the CFS or can be found in the Other Comprehensive Income section
Sorry for bringing up this old post again but I have a question regarding teh calculation of Capex out of IS and BS.
Why do we make a distinction between the calculation for FCF and capex alone?
Above it's stated that:
Capex = New PPE - Old PPE + Depreciation But when you would like to calculate FCF, it is just Capex = New PPE - old PPE
In FCFF calculation, if i use capex=new net PPE - old net PPE, do i still add depreciation to EBIT ? And if i am just matching the cash flow statement ,i have to put CAPEX as new PPE- Old PPE +depreciation. So the capex i put in the cash flow statement is different from the capex to calculate FCFF ? Really sorry for the noobie question , but i am a noobie......... Thanks in advance
This becomes a lot more complicated when you enter the real world. You've got to start accounting for asset disposals, impairments, write-offs, and M&A activity.
The following adjustments, though, provides a simplified example of the IFRS balance sheet taxonomy, and it is not significantly different for US GAAP:
-(Impairments + Net_Disposals) = NetPPE_New - AdditionsToPPE + DepAmort - NetPPE_Old
AdditionsToPPE - Gross_Disposals = GrossPPE_New - GrossPPE_Old
Accum_Disposals - Impairments = AccumDDA_Old - AccumDDA_New + DepAmort
(AdditionsToPPE - Gross_Disposals) + (Accum_Disposals - Impairments) = (GrossPPE_New - GrossPPE_Old) + (AccumDDA_Old - AccumDDA_New + DepAmort)
Ultimately, none of these really calculate actual Capital Expendiatures and are really just estimates and when determining the cash impact of Growth or Maintenance CapX you really want likely unfinanced Capital CapX and the projected debt load of any financed CapX.
For a Maintenance CapX example, a trucking company may be running their trucks out longer. They are not yet replacing them so this would not show up in your calculations outside of depreciation but the may be fully depreciated and still in use. The maintenance costs will be reflected in the P&L but this practice cannot go on forever and they will need to replace them which could pose a real cash flow issue that would be completely missed using the methods above. You ultimately would have to understand how much useful life is likely left in each one, figure out the cost of replacing each and when they will likely have to. Then figuring out 1. Does the company have the capacity and ability to borrow for new trucks, 2. what % of the trucks they will be able to borrow, and hitting them with the difference. You would also want to include the new debt in the pro forma to better reflect what the company would look like when the likely event occours.
Growth CapX would be maybe their current equipment is near capacity or they are expanding elsewhere and will have to purchase new equipment etc in addition to their existing fleet (beyond the regular turnover of equipment which is Maintenance CapX). You would then like above want to know the new debt load impact to cash flow and the down payment or initial cash outlay for the CapX expansion.
The CapEx formula from the income statement and balance sheet is:
CapEx Formula
This formula is derived from the logic that current period PP&E on the balance sheet is equal to prior period PP&E plus capital expenditures less depreciation.
Important Note: This formula will produce a “net” capital expenditure number, meaning if there are any dispositions of PP&E in the period, they will lower the value of CapEx that is calculated with the formula. To adjust for this, you will be required to read the notes to the financial statements.
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