I’m putting together a basic DCA and a question regarding fixed capital investment popped up in my head. When calculating a companies investment in Fixed Capital, can this ever be negative? I’m assuming no since you should net out any proceeds from the sale of property, plant equipment etc… but the question just crossed my mind…
never heard of negative capex…
hmmm
Are talking about negative PPE on the BS or negative Cap Ex from say a period (or CF) perspective?
You simply can’t have negative PPE on the BS. Say for example you have an asset with a NBV of zero and you sell it for $10k. You’d debit cash and credit a gain acct. Your PPE acct is already zero b/c its fully offset with accum. depreciation, so with regard to that asset, it can’t go negative. You’ll have other assets keeping the account in positive territory, so this is all conceptual.
If you are looking at a time period, either QTD or YTD, I guess you could have “negative Cap Ex” if you received more cash for assets sold then you spent on newly acquired assets in the given period. Ignoring all other transactions, you would have a net cash inflow from investing activities on your SOCF. From a practical perspective though, no reasonable analyst would forecast this out because either a) you’re eventually going to run out of assets to sell, or b) you’re going to sell operating assets and comprimise the underlying business.
Sorry for the long and thought out answer, but I work in public accounting so I very rarely get to use the analytic side of my mind.
You can certainly have negative net CapEx for a year. If a company gets more from cash proceeds from sale of PP&E vs. cash investment into PP&E, you’re going to have a net cash inflow in a category that normally sees a net outflow. One or even two years of this wouldn’t be crazy weird, but a consistent negative net CapEx suggests that the businesses PP&E are slowly being liquidated.