Capital expenditure, or capex, is the amount of money a company spends to buy or upgrade fixed assets, such as buildings and equipment. A company uses these assets to generate profits and grow its business. A company reports the amount of its capital expenditures on its cash flow statement to show financial statement users how much money it is reinvesting in its business. An amount of capex that grows between accounting periods means the company is spending more money on fixed assets. You can determine the growth in capex using information from two cash flow statements.
Find a company’s most recent cash flow statement and its cash flow statement from its previous accounting period in its 10-Q quarterly reports or in its 10-K annual reports. You can get these reports from the investor relations page of the company’s website or from the U.S. Securities and Exchange Commission’s EDGAR online database.
Find in each cash flow statement the amount of capital expenditures, listed in the “Cash Flow from Investing Activities” section. A cash flow statement shows the amount of capital expenditures in parentheses to designate a cash outflow. For example, assume the company spent $150,000 in capital expenditures in its most recent period and that it spent $125,000 in capital expenditures in its previous accounting period.
Subtract the amount of capital expenditures in the previous period from the amount of capital expenditures in the most recent period to calculate the capex growth. In this example, subtract $125,000 from $150,000 to get $25,000 in capex growth.
Divide the amount of capex growth by the amount of capital expenditures in the previous period to determine the capex growth as a percentage. Continuing the example, divide $25,000 by $125,000 to get 0.2, or a 20 percent growth in capex. This means the company spent 20 percent more on fixed assets in the most recent period than in the previous period.
Monitor a company’s capex growth over different accounting periods and read its financial reports to determine how it is spending its money. A growing company will typically grow its capital expenditures over time, but growth in capital expenditures without an accompanying growth in its sales and profits may suggest the company is using its money inefficiently.