The net capital spending of a company is how much money the company invests in their fixed assets over the course of an accounting period. Companies with a high net capital spending amount are growing and spending more money on developing their infrastructure than companies with lower net capital spending. The formula for net capital spending is the change in fixed assets plus depreciation. You must add depreciation back since it is an expense on the balance sheet, however it is a non-cash expense, so no actual cash changes hands.
Find the company's fixed assets at the beginning of the year and the fixed assets at the end of the year. This information is on the company's balance sheet. For example, a company has £65 in fixed assets at the beginning of the year and £195 in fixed assets at the end of the year.
Subtract fixed assets at the end of the year from fixed assets at the beginning of the year. In the example, £195 minus £65 equals £130. This is the change in fixed assets for the year.
Add the depreciation expense for the year to the change in fixed assets for the year. Depreciation expense is on the company's income statement. In the example, if the company has £19 of depreciation, then £130 plus £19 equals £149 in net capital spending for the year.
Things you need
- Company's balance sheet
- Company's income statement