Q&A: Assessing Business Strength, Finding Amount of Capital Expenditure

Modified: 01-Jul-20

The current article in this series provides responses related to:

  • Reader’s inputs about assessing business strength of companies
  • How to get the data for capital expenditure?

 

Reader’s inputs about assessing business strength of companies

Thanks a lot Vijay for your article on Ambika Cotton Mills Limited:

Equity Research: Ambika Cotton Mills Limited

I can clearly see that past scenario of the company has been really good and we should definitely give credits to the management. But my only contention is to what extent!! In my own personal experience, only 3-4 of my colleagues out of the top 20 rankers have consistently performed well throughout even after schooling (change in business dynamics/competition etc). Well, others might have reverted to the mean.

When we take a sizeable positions in our portfolio (like I see you own only 5 stocks in the portfolio i.e. high concentration), while independent past data due diligence is extremely important, it would be great if we can understand what dynamics can a particular business face and how well is the management positioned to face those dynamics and keep competition still at the shore.

I agree, it’s not very easy to understand a particular niche industry very much in depth without domain expertise. However, as active group of investors, we should try to understand why the past figures are so consistent with consistently high IRR’s. May be we can find the answers to our question which will help us understand business much better and we can hold with higher level of conviction. I will try from my side if I can get something additional on this.

You have created a fabulous website and doing an amazing job to educate all of us.

Author’s Response:

Hi,

Thanks for your valuable inputs! These are helpful for the author as well as other readers of drvijaymalik.com

I agree that an investor must have the conviction to hold the stock through thick and thins of business cycles and also that the sources of conviction are different for each investor.

At the end, it all boils down to putting time and effort towards gaining knowledge of what an investor feels the most important factors.

Wish you the best for your investing journey.

Regards,

 

How to get the data for capital expenditure?

Hello sir, how to get data of capital expenditure (Capex) for last 10 yr.?

Is capex equal to “Cash from investing activity”??

Thanks.

Q 2:

Dear Vijay,

Please elaborate Capex outflow. What is the formula of this? And where will I find cash paid for acquisitions from financial statements?

Author’s Response:

Hi,

Capex is only part of Cash from Investing (CFI) activity. There are other items over and above capex like purchase/sale of investments, dividend income etc. which are also part of CFI.

You may calculate capex by following formula.

  • NFA = Net fixed assets
  • CWIP= Capital work in progress
  • Dep= Depreciation
  • Capex = capital expenditure

(NFA+CWIP) at Year end = (NFA+CWIP) at start of year – Dep+Capex

Therefore,

Capex = (NFA+CWIP) at year end – (NFA+CWIP) at start of year + Dep

Hope it clarifies your queries.

Read: Understanding the Annual Report of a Company

Regards,

P.S.

 

DISCLAIMER

  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above except Vinati Organics, in my portfolio.

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