Calculating capital expenditure is important because it can show how much a company is currently investing in Capex and where the company may need to adjust for future operations. But how can someone calculate capital expenditures? This is the process of calculating capital expenditures:
Retrieve all necessary financial information and statements. These include cash flow statements and income statements and any other financial information that might have data on assets.
Subtract current fixed assets from the value of fixed assets from the fiscal year before. With financial statements like Apple’s, these two numbers are both available to make the calculations simple.
Subtract the accumulated depreciation. Assets depreciate in value, and it’s important to include that in calculations.
Add the current number to the total depreciation value. Then that final figure will be the total capital expenditure for the company for the last year.
This process can be expressed as a formula for calculating capital expenditures that can be useful for companies looking to better understand their current capital expenditures.
The formula can be written as:
Capex = ΔPP&E + Current Depreciation
PP&E represents change in property, plant, and equipment. However, if a company chooses to calculate capital expenditures, every organization should understand how much they spend in capital expenditures and where there is potential for growth.