How To Calculate CAPEX

In any company, expenses incurred to help develop the capacity or efficiency of a company is called CAPEX or capital expenditures. Under capital expenditures are the assets that are acquired or maintained for future benefits of the company. These are productive assets such as buildings, vehicles, machinery and equipment. For tax purposes, these expenditures cannot be deducted within the taxable year when it was paid or incurred therefore it must be capitalized.

  • Gather the data. Peruse the company's financial books and database. It will be helpful if you can gain access to the offices of executives and staff in order to maximize your data gathering as well. List all costs related to the physical improvement of the company. This may range from fixing a leak on the roof to building a brand new office. This will also include the purchase of machinery, vehicles or equipments which were for the company's benefit. Analyze the data until you find the total amount of money infused in the company and determine which amounts can be considered CAPEX.
  • Examine the financial statement. Obtain a copy of the company's financial statement for two given years specifically the balance sheet. The balance sheet is divided into categories; assets, liabilities, and ownership equity which are typically listed on the balance sheet in order of liquidity. Check the total assets and total liabilities and analyze the current state of the company. With this on hand you are most likely to grasp the business' standing in terms of investments.
  • Determine the total assets. Locate the total assets of the company of the previous and current year. Calculate the year-over-year change in the assets by subtracting the total assets of the previous year to the current year. This will give you the change in your assets. An example of this is if the total assets for 2009 are $5 million and $8 million for 2010 then the change of assets is $3 million.
  • Determine the total liabilities. Locate the total liabilities of the company on the balance sheet. Calculate the year-over-year change in liabilities by subtracting the total liabilities for the previous year and the current year. If the total liabilities indicated on the balance sheet for 2009 is $1.5 million and $2.5 million for 2010, the total change in the company's liabilities is $1 million.
  • Compute the CAPEX. To compute for the total capital expenditure, subtract the total change in assets and the total change in liabilities. The result will be the company's capital expenditure. In the examples given, the total change in assets is $3 million based on the year-over-year calculation and $1 million for the total change in liabilities. Therefore, subtracting the two changes will result to a $2 million capital expenditure.

Calculating the capital expenditure of an organization or business is essential. It can significantly influence the value of the business and it is the heart of the company's financial condition. Knowing the company's capital expenditure will provide a baseline which can help determine the returns on all the investments infused into the company.


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