Scribd Logo
Upload

Welcome to Scribd!

  • 220 views

    Capital Expenditure (CAPEX)

    Uploaded by

    GurjeevAnand
    Capex learnings with examples. Business analysis

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd

    Capital Expenditure (CAPEX)

    Uploaded by

    GurjeevAnand
    220 views2 pages
    Capex learnings with examples. Business analysis

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Capex learnings with examples. Business analysis

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Download as pdf
    220 views2 pages

    Capital Expenditure (CAPEX)

    Uploaded by

    GurjeevAnand
    Capex learnings with examples. Business analysis

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Download as pdf
    of 2
    oainsi2015 Capital Expenditure (CAPEX) INVESTOPEDIA ¢ Capital Expenditure (CAPEX) By Adam Hayes | Updated March 12, 2015 DEFINITION Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial ‘buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by ‘companies to maintain or increate the scope oftheir operations. These expenditures can include everything from repairing a roof to bullding, to purchasing a piece of a equipment, or bulding a brand new factory. INVESTOPEDIA EXPLAINS. In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or ‘an investment that improves the useful life of an existing capital asst. If an expense is a capital expenditure, it needs to be capitalized. This requires the company to spread the cost of the expenditure (the fixed cost) over the useful life of the asset. If, however, the expense is one that maintains the asset at ts current condition, the cost is deducted fully n the year of the expense. ‘The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital {Intensive industries have the highest levels of capital expenditures including oil exploration and production, telecom, ‘manufacturing and utilities, Capital expenditure should not be confused with revenue expenditure or operating expenses (OPEX), Revenue expenses are shorter-term expenses required to meet the ongoing operational cost of running a business, and therefore they are essentially ‘identical to operating expenses. Unlike capital expenditures, revenue expenses can be fully tax-deducted in the same year in which the expenses occur. USING CAPITAL EXPENDITURES IN MULTIPLES FOR RELATIVE VALUATION ‘The cash flow to capital expenditure ratio, or CF/CapEX, relates to a company's ability to acquire long term assets using free cash flow. The cashflow to capital expenditures ratio will often fluctuate as businesses go through cycles of large and small capita ‘expenditures. A high multiple is indicative of relative financial strength. Ifa company has the financial ‘through capital expenditure, i is easier forthe company to grow. It is important to note that this s an industry specific ratio, and should only be compared to a ratio derived from another company that has similar CapEx requirements, (CF to Caphx is calculated a8: (CE/CapEx = Cash Flow From Operations / Capital Expenditures Capital expenditure can also be used in calculating free cash flow to equity (FCFE) to a firm with the following formula: FFCRE = Barnings Per Share ~ (CapEx ~ Depreciation)(1 ~ Debt Ratio) - (Change in Net Working Capital)(1 ~ Debt Ratio) or alternatively: FORE = Net Income - Net CapEx - Change in Net Working Capital + New Debt - Debt Repayment ‘The greater the capital expenditure fora firm, the lower the free cashflow to equity. tpn investopedia.comermsic/captalexpendiure asp?viewsprint 1. oainsi2015 Capital Expenditure (CAPEX) tpn investopedia.comermsic/captalexpendiure asp?viewsprint 22.

    You might also like