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Capital Expenditure Formula (Examples) | How to Calculate CAPEX? - YouTube
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that's given below welcome everyone and
today's topic is capital expenditure
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formula. Let's try and understand this in
a detailed format what exactly this
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formula is all about
it's basically an accounting formula and
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capital expenditure is basically a part
of our assets so when the key backs the
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capex is basically added it has been
comprised as the part of the assets
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let's understand this in a detail format
now what is key back key packs is
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basically your net increase in your
property plants and equipments that is a
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PPE plus your depreciation expenses so
it's net increase in the PPE plus
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depreciation expense let's understand
this in a detailed format with the help
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of an example
now first on the foremost thing the
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capital expenditure formula it
calculates what the total purchase total
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purchase of the assets by the company in
the given fiscal year and it can be
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easily found by adding net increase
in PPE value during the year to its
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depreciation expense for the same year
so what is going to be the formula the
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Capex formula is going to be your net
increase in PPE plus your depreciation
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expenses so here the net increase in the
PPE during the year can be calculated by
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deducting the PPE at the
beginning of the year from the PPE value
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- PPE at the end of the year so that
will be the net increases so beginning -
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end will give you the increase right so
how we can derive this the net increase
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in PPE is going to be PPE at the
beginning or you can say actually it
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should we end - at the beginning of the
year. Now on the other hand if you see
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that a depreciation expense over here this
part the depreciation expense during the
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year can be calculated by deducting the
accumulated depreciation at the
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beginning okay depreciation or I'll say at
the end of the year - accumulated
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depreciation at the beginning of the
year right so the formula of capex goes
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something like this
it is PPE at the end
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- PPE at beginning okay this is the
first part + accumulated depreciation
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at the end - accumulated
depreciation at the beginning as simple
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as that
right so this is the whole formula
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let's understand this with the help of a
step by step approach for our better
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understanding the steps to calculate
capex now
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the step one is firstly the PPE value at
the beginning of the year and the end of
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the year is collected from the asset
side the first value is collected from
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the asset side of the balance sheet and
the net increase in the PPE value is
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calculated by deducting at the beginning
from the end so step two the next is the
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accumulated depreciation at the
beginning of the year and at end of
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the year is collected from the balance
sheet net accumulated depreciation at
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beginning this calculated collected from
the balance sheet and then the
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depreciation expense during the year is
calculated by deducting the depreciation
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at the end minus beginning of the year
conversely you can also say that these
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depreciation expenses incurred during
the year can also be directly be
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collected from the income statement okay where it is captured as a separate line
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item so depreciation expense is equal to
the accumulated depreciation at end of
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the year occur with the depreciation at
the end of the year - accumulated
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depreciation at the beginning of the
year
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finally the step three is just to
calculate the capex write our formula as
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simple as that so let's get with an
example to understand this topic with
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some numbers let's crunch some numbers let us take then the example of a
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company ABC limited and calculation of
capital expenditure based on some of the
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following information which I'm going to
specify let's say the depreciation
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expense is 10500 in the
income statement then the PPE at the end
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of the year 20 let's say 45500
and at the
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beginning of the year let say it is
40000 therefore the net
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increase in the PPE value is going to be
how much its end minus beginning that is
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5500 and depreciation right so my capex
will be how much well it is your
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net increase in the PPE and the
depreciation that is your capital
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expenditure let's take this is just a
simple example which I had coated let
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me take a little one more of a
complicated one to make this a good way
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of understanding let us take an example
of Apple Inc everyone have heard about
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Apple and the calculation of the capital
expenditure let's say in 2017 and 2018
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let's take it as the net PPE at the
opening
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let's say 33783 and 27010. Consider
this as millions everything is in
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millions ok. Net PPE this will be closing
ok so when we are talking about closing
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let's say 41304 33783 then we have
the depreciation accumulated
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depreciation at the opening value that
is the beginning of the year 41293
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and 34235 finally depreciation
closing which will be 49099 and 41293
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so the net increase in the PPE is how
much net PPE is gonna be you are closing
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- the opening right so this is the net
increase in 2017 okay in the similar
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fashion let's take for depreciation
closing - opening and in the similar
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fashion here 7058 so my
capex will be for both the years is
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13831 right so I hope you have
got a fantastic idea from this
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particular topic finally let me make you
understand the relevance and use of this
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formula see the capex formula is used
for calculating the total purchase of
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assets that is made by the company
during the given period of time and it
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is calculating by adding the net
increase in the value of the plant,
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property and equipment and the
depreciation expenses during the
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particular fiscal year see the
understanding of the capex is very
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important from the point of view of the
business since it is usually very
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expensive and especially for the
companies who are in the manufacturing sector
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so these kind of capex signify the fund
that it is being utilized by a company
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for a purchase of improvement of long
term
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assets with an intention to improve the
production capacity of the company so a
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capex formula basically offers the
potential to reap benefits in the future
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as a part of the long-term strategic
goal however you need to note here
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something that the biggest challenge
that is associated with the decision of
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the capital expenditure is that it
cannot be undone in the future without
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incurring losses given the huge initial
outlay so as such the wrong capital
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expenditure can be completely
detrimental to the company's growth
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nevertheless the capital
expenditure has to be incurred either in
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the form of new setup or for the a
up gradation simple of the existing setup in
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order to ensure that the company is
operating with the state-of-the-art
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technology and it is to be noted that if
the capital expenditure incurred during
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the year he is higher I'm saying if the
capex is let's say higher than the
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depreciation expenditure during the year then it indicates growing asset base of the
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company otherwise it is shrinking asset
base of the comes well that's it for
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this particular topic if you have
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