# CAPEX

Capex (capital expenditure), in Spanish capital expenditure, is the investment in capital or fixed assets that a company makes either to acquire, maintain or improve its non-current assets .

It is explained as, the investment necessary to maintain or expand capital goods (factories, machinery, vehicles, etc). It is very important within the activity of a company and its future evolution.

We know that the future of a company, its growth, and the cash flows it generates will depend on the investments made. Therefore, Capex is an element of high relevance in a company’s business. In addition, it provides us with information about whether the company is investing to continue growing or simply to maintain itself.

## Disaggregating the Capex

The investment in fixed assets by the company can be classified into two types, in terms of the object of that investment:

• Capex maintenance: It is known as the replacement investment. That is, the investment necessary to cover the impairment and the expense in depreciation of fixed assets. So it could be understood as the necessary investment by the company to maintain the same level of current sales.
• Capex expansion: It is the necessary investment in fixed assets to increase the current level of sales. That is, what the company invests to acquire new fixed assets and / or improve the current one.

Therefore, the total investment in Capex by the company will be the sum of the previous two. Thus, a company will carry out an expansion strategy when the total level of Capex is greater than the expense in amortization. This means that, you are investing not only to replenish assets, but also to increase or improve them.

## Finding Capex in the financial statements

The investment made by companies in Capex can be found directly in the statement of cash flows . More specifically in the cash flow of investment activities. However, there is a very simple formula to calculate it using only the income statement and the balance sheet .

As mentioned above, the total Capex will be the sum of maintenance and expansion. In addition, we have assimilated the maintenance Capex to the company’s amortization expense. So the formula to calculate the Capex part of this sum. Mathematically, its calculation is as follows:

Capex = Fixed Assets Net Material (year t) – Fixed Assets Net Material (year t-1) + Amortizations (year t)

In other words, for the calculation of Capex we follow the following steps:

1. We take the balance of the company in the current year and look at the figure of the Net Assets.
2. We subtract the Net Fixed Assets from the Net Fixed Assets from the balance of the previous year.
3. To the result we add the expense in depreciation of this year that is in the income statement.

## CAPEX example

Assume a company that has published its balance of the previous and current year, and its current income statement. And with that we want to see the investment in Capex made during this year.

 Summary Balance (figures in thousands of €) Active Year 0 Year 1 passive Year 0 Year 1 Box 5 8 Short Term Debt 150 200 Stocks 150 100 Suppliers 200 76 customers 300 500 Remun pending payment 75 2. 3 Staff advances fifty 65 Creditors (non-fiscal) 32 58 Other current assets fifty two Other operative circ liability 25 twenty Total Current Assets 555 675 Total Current Liabilities 482 377 Financial assets 325 0 Other long-term liabilities fifteen 36 Fixed assets Net Mat 550 800 Long term financial debt 225 69 Other Fixed Assets 42 107 Total Long Term Liabilities 240 105 Total Non-Current Assets 917 907 Own Funds 750 1,100 TOTAL ASSETS 1,472 1,582 TOTAL LIABILITIES 1,472 1,582

Being the income statement :

 Summary Income Statement € thousand Year 1 Sales 2,000 Cost of Sales (600) Gross margin 1,400 Personal expenses (250) General expenses (fifty) Other expenses (fifteen) EBITDA 1,085 Amortization (65) EBIT 1,020 Financial income 35 Financial expenses (55) Financial results (twenty) Rdo Before Taxes 1,000 Taxes (300) Net profit 700

Following the formula described above and using the company’s financial statements attached in the example, the result of the investment in Capex will be:

Capex = (800-550) + 65 = 315.

As we see in this case, the company is carrying out an expansion policy, since Capex> Amortizations.

##### byAbdullah Sam
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