Capex to Depreciation
Calculate the capital expenditure to depreciation ratio, which compares what a company invests in its assets with what wears off them.
Depreciation and amortization approximate the investment needed to keep the asset base as it is, so a ratio above 1 means the company is growing its assets, a ratio around 1 that it is maintaining them, and a ratio persistently below 1 that it is underinvesting, which flatters the free cash flow for a while but erodes the business. Damodaran’s net capital expenditure (capital expenditure minus depreciation) is the same comparison as a difference. Acquisitions are not capital expenditure, so a company that grows by buying others can show a low ratio while its assets grow.
The formula is as follows:
\[\text{Capex to Depreciation} = | \text{Capital Expenditure} | / \text{Depreciation and Amortization}\]Capital expenditure is reported as a negative cash outflow, so its magnitude is used. Depreciation and amortization of zero or less gives NaN.
Also known as: capex to D&A, capex to depreciation, reinvestment ratio, maintenance capex ratio.
Capex to Depreciation in Python or via the MCP
Install the Finance Toolkit with:
pip install financetoolkit -U
Then call get_capex_to_depreciation_ratio as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(
["TSM", "INTC", "MSFT"],
api_key="FINANCIAL_MODELING_PREP_KEY",
start_date="2021-01-01",
end_date="2025-12-31",
)
toolkit.ratios.get_capex_to_depreciation_ratio()
Or, after setting up the Finance Toolkit MCP, ask:
How did the capital expenditure of TSMC, Intel and Microsoft compare with their depreciation in each year from 2021 to 2025?
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| INTC | 1.724 | 1.9217 | 2.6817 | 2.1042 | 1.2512 |
| MSFT | 1.7647 | 1.6519 | 2.0278 | 1.9956 | 1.8901 |
| TSM | 2.011 | 2.492 | 1.7952 | 1.4424 | 1.8639 |
Parameters
get_capex_to_depreciation_ratio accepts the following parameters.
| Parameter | Type | Description | Example |
|---|---|---|---|
rounding | int | None | The number of decimals to round the results to. Defaults to None, which uses the rounding of the Toolkit (4 unless set otherwise). | 2 |
growth | bool | Whether to calculate the growth of the ratios. Defaults to False. | True |
lag | int | list[int] | The lag to use for the growth calculation. Defaults to 1. | 4 |
compound | bool | Whether the growth is the compound annual growth rate over the lag (e.g. lag=5 for the five-year CAGR) instead of the total change. Defaults to False. | False |
standardize | bool | Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False. | True |
trailing | int | The number of periods to sum flows (cash flow statement items) over. E.g. 4 with quarterly data gives the trailing twelve months (TTM) and 3 with annual data a three-year cumulative figure. Defaults to None, which uses single-period flows. | 4 |