×
For more information, get in touch with our team:
+44 7918 53 08 73
Hint mode is switched on Switch off
Glossary

Capital expenditures

Category — Financial Statements
(Capital expenditures, CAPEX) are the costs incurred by the company to procure and upgrade non-current assets. These investments may be made into both fixed assets (buildings, structures, equipment) and various intangible assets (e.g., licenses and patents). The company costs shall be classified as CAPEX if they are invested into long-term assets with the validity period of over 1 year.

As a rule, CAPEX is calculated based on reports prepared in accordance with the International Accounting Standards (IAS). The company’s capital expenditure shall be accounted for in accordance with IAS 16 «Property, Plant and Equipment», IAS 23 «Borrowing Costs» and IAS 38 «Intangible Assets».

CAPEX is calculated as follows:

CAPEX = PPE and IA in the reporting period – PPE and IA in the previous period + Depreciation in the reporting period,

where PPE means property, plant and equipment and IA means intangible assets.

Information on the company’s capital expenditure can be found in:

1) the company’s financial reports (e.g., Gazprom)



2) presentation for investors, which is published with the reports on the official web site of the issuer (e.g., Rosneft)



3) press release regarding the published IAS reports (e.g., Lukoil)



In practice, the CAPEX indicator is used by the companies to calculate the free cash flow, i.e., the money retained by the owner after making all capital expenditures.

Additionally, for the investor, the growing CAPEX indicates the possibilities of expanding the company’s production capacities, which potentially means higher revenues in the short-term perspective.
Terms from the same category