Abnormal growth rate of capital expenditure
factor.formula
The calculation formula of abnormal growth rate of capital expenditure is:
Capital Expenditure Ratio Calculation Formula:
In the formula:
- :
The abnormal growth rate of capital expenditure in period t-1. This factor measures the deviation of the ratio of capital expenditure to operating income (CE) of the enterprise in the most recent period from the average level of the past three years.
- :
The capital expenditure ratio in period t represents the ratio of the enterprise's current capital expenditure to its operating income, and measures the relative scale of the enterprise's capital expenditure.
- :
Capital expenditure in period t is defined as the cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets, minus the net cash received from the disposal of fixed assets, intangible assets and other long-term assets. This indicator reflects the expenditure of an enterprise on long-term asset investment in a specific period.
- :
The operating income in period t reflects the total income earned by the enterprise through operating activities during a specific period.
factor.explanation
Abnormal growth rate of capital expenditure (CI) captures the abnormal behavior of enterprises in capital expenditure by comparing the difference between the capital expenditure to operating income ratio (CE) of the enterprise in the most recent period and the average level of the past three years. A high CI value indicates that the enterprise has carried out investment activities higher than the historical level in the current period, which may indicate that the management is overconfident or inefficient. Behavioral finance believes that such overinvestment behavior often occurs in periods of market optimism and is likely to lead to negative impacts on future earnings. In particular, for those companies with higher cash flow and lower debt ratio, their investment decisions are less constrained, and the negative impact of such overinvestment may be more significant. Therefore, this factor has a stronger predictive ability for such companies.