Also known as capital expenditures, this figure represents a company's material expenditures which are expected to benefit future periods, such as spending for property, plants, and equipment, and intellectual properties such as software, trademarks, and patents.
Note: In the past, because it was understood to be an expense, we listed this figure as a positive, gross amount. However, beginning with the May 2001 release, the capital spending number is a net amount when the gross amount is unavailable.
Benefit
Capital spending shows how aggressive a company burns through cash. A young company investing heavily in its growth will naturally have high capital spending relative to its cash flow from operations. A mature company will tend to have lower capital spending relative to its cash flows. Some capital-intensive companies, like electric utilities, tend to have high capital spending year in and year out.
Origin
This information is found on the Statement of Cash Flow in a company’s financial reports and is expressed in millions of dollars ($M).
For the Pros
If capital spending exceeds depreciation and amortization, it’s a sign that a company is spending above and beyond the level needed to simply maintain its current business.