Capital expenditures dedicated to growth can be calculated as below in the following three steps (from Value Investing: From Graham to Buffett and Beyond (Hoboken, NJ: John Wiley & Sons, 2001) :
- Calculate the ratio of gross property, plant, and equipment (PPE) to sales for each of the past 5 years and find the average;
- Use this to indicate the dollars of PPE it takes to support each dollar of sales;
- Multiply this ratio by the growth (or decrease) in sales dollars the company achieved in the current year
It could be useful when comparing two companies from the same industry.