Where do I find capex in a company’s financial statements?

You find capital expenditures (capex) on the cash flow statement, not on the balance sheet or income statement.

The cash flow statement is broken up into three large chunks, almost always in this order:

  • Cash Flows from Operating Activities
  • Cash Flows from Investing Activities
  • Cash Flows from Financing Activities

Capex will be listed in the cash flow statement under Cash Flows from Investing. Capex will usually be called “Purchases of Property, Plant, and Equipment. (PP&E)”

A capex warning

One thing to look out for is that capital expenditures can be lumpy from period to period. A company may upgrade a facility or buy a new airplane in one quarter and not have to buy another major piece of equipment for the next several quarters.

In addition, many companies — such as Cisco (Nasdaq: CSCO), 3M (NYSE: MMM), and Johnson & Johnson (NYSE: JNJ) — get much of their growth from acquisitions, not just from classical organic growth capex.

I always include acquisition expense (which is also listed under Cash Flows from Investing) in with capex to get a better picture as to how much money the company needs to grow, whether it’s from expanding the existing company organically or through bolting on new companies it’s buying.

In some cases — again like Johnson & Johnson and 3M — companies are also frequently selling off bits of themselves.  If they make a regular habit of this, I make sure to include the cash raised from these sales into my net capex figure.

The long view of capex

I always look at the last 5 years’ worth of capex and see what the average expense percentage is with regard to revenue.

When I’m valuing a company, I want to make sure I’m getting a representative average of their expense.

One of the chief advantages of the cash flow statement (it shows the exact amount of money that flowed into and out of the company for the period) is also one of its weaknesses when it comes to valuation. Since it’s not a smoothed accounting average like depreciation and amortization are, a single snapshot of a quarter or year may not be representative of how much the company spends on average. This is especially true when looking at the last several years, where we had a large bubble and large recession.

For more on the topic and related terms, check out The Motley Fool’s wiki.

— Answer provided by Motley Fool member Mike Sandrik

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