Capital Expenditure

Hi Daniel,

The capex is 1 and 2. The disposal of PPE is a gain, not spending.

Victor, Why should we not include item (3) since it is related to PPE. The company has sold the PPE and get back some money from the disposal and shouldn't we deduct this disposal amount from (1) and (2)? In 2013, this company has actually received proceeds of $6.4m vs $3.9m from (1)+(2). One more question. If the company indicated in investing activities in cash flow statement of purchase of an investment property, do you consider this as a CAPEX? The company's investment property is buying an office in Singapore while its main operations are outside Singapore (PPE spent is not in Singapore). I just want to confirm that PPE should be related to the core business operations.

Hi Daniel,   1. The purpose of examining capex is to assess how much free cash flow (FCF) the company can generate after covering maintenance capex. This assessment depends on your level of conservatism. When you add back the disposal amount, your FCF appears higher. As investors, we aim to be as conservative as possible. I would like to note that the method you're inquiring about isn't a common market practice, and I haven't seen anyone using it before.


2. When we refer to Capex, we're talking about maintenance capex, which is the annual spending a company needs to keep the business running. The purchase of property for operational purposes is what we call development capex. This doesn't occur frequently; therefore, it should is not classified as maintenance capex. However, on the flip side, if you want to be more conservative, you can include that figure, which would result in a lower free cash flow.