What is the Capital Expenditure (CAPEX) Formula?

CAPEX Formula = Net Increase in PP&E + Depreciation Expense

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Steps to Calculate Capital Expenditure (CAPEX)

Examples of Capital Expenditure Calculations 

Let’s see some simple to advanced examples to understand the calculation of Capital Expenditure.

  • Firstly, the PPE value at the beginning of the year and the end of the year is collected from the asset side of the balance sheet. Then, the net increase in PPE value is calculated by deducting the PPE value at the beginning of the year from the PPE value at the end of the year. Net increase in PPE = PPE at the end of the year – PPE at the beginning of the year Next, the accumulated depreciation at the beginning and the end of the year is collected from the balance sheet. Then, the depreciation expense during the year is calculated by deducting the accumulated depreciation at the beginning of the year from the accumulated depreciation at the end of the year. Conversely, the depreciation expense incurred during the year can also be directly collected from the income statement, which is captured as a separate line item. Dep. expense = Accum. Dep. at the end of the year – Accum. Dep. at the beginning of the year Finally, the capital expenditure incurred during the year can be calculated as either, Capex Formula = (PPE at the end of the year – PPE at the beginning of the year) + (Accum. dep. at the end of the year – Accum. dep. at the Beginning of the year)orCapital Expenditure Formula= (PPE at the end of the year – PPE at the beginning of the year) + Dep. expense

Capex Formula = (PPE at the end of the year – PPE at the beginning of the year) + (Accum. dep. at the end of the year – Accum. dep. at the Beginning of the year)orCapital Expenditure Formula= (PPE at the end of the year – PPE at the beginning of the year) + Dep. expense

Example #1

Let us take the example of a company ABC Ltd and calculation of capital expenditure in 2018 based on the following information:

  • Depreciation expense is $10,500 in the income statementPP&E value at the end of 2018 is $45,500 on the balance sheetPP&E value at the beginning of 2018 is $40,000 on the balance sheetThe Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more

Therefore,

Net increase in PP&E = PP&E value at the end of 2018 – PP&E value at the beginning of 2018

Consequently,

Capital Expenditure (capex) Formula = Net increase in PP&E + Depreciation expense

Therefore, the calculation of Capital Expenditure incurred during 2018 is $16,000.

Example #2

Let us take the example of Apple Inc. and the calculation of capital expenditure in 2017 and 2018 based on the following information:

Net increase in PP&E in 2017 = $33,783 – $27,010

Depreciation in 2017 = $41,293 – $34,235

The Calculation of Capital expenditure in 2017 = $6,773 + $7,058

Again,

Net increase in PP&E in 2018 = $41,304 – $33,783

Depreciation in 2018 = $49,099 – $41,293

The Calculation of Capital Expenditure in 2018 = $7,521 + $7,806

CAPEX Formula Video

This article has been a guide to Capital Expenditure (CAPEX) Formula. Here we discuss how to calculate Capital Expenditure step by step and examples. You can learn more about financial analysis from the following articles –

  • Accumulated Depreciation FormulaCapex vs. Opex – DifferencesCapitalization vs. ExpensingCalculate Depreciation Tax ShieldInternal vs. External Financing