Abnormal growth rate of capital expenditure
factor.formula
Calculate the rate of change in capital expenditure intensity relative to the average of the past three years
Calculating capital expenditure intensity
The meanings of the parameters in the formula are as follows:
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The abnormal growth rate of capital expenditures in period t-1 (the most recent year). This value measures the percentage change in the company's capital expenditure intensity in the most recent year relative to the average level of the past three years.
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The capital expenditure intensity in period t is equal to the ratio of capital expenditure to operating income. The specific calculation is shown in the $CE$ formula below.
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Capital expenditure intensity in period t-1 (the most recent year).
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Capital expenditure intensity in period t-2 (the penultimate year).
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Capital expenditure intensity in period t-3 (the third to last year).
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Capital expenditure intensity in period t-4 (the fourth year from the end).
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Capital expenditure intensity is defined as the ratio of capital expenditures to operating income.
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Capital expenditures are calculated as follows: cash paid for the acquisition or construction of fixed assets, intangible assets and other long-term assets, less the net cash received from the disposal of fixed assets, intangible assets and other long-term assets.
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Operating income refers to the total income earned by a company from its operating activities.
factor.explanation
This factor captures the degree of abnormality in a company's capital investment behavior. Companies with a high abnormal growth rate of capital expenditures may have problems with overinvestment or low investment efficiency, resulting in lower future returns. This phenomenon is particularly evident in companies with greater investment autonomy (such as companies with ample cash flow or low debt). These companies may make ineffective or inefficient investments due to lack of constraints. This factor reflects the potential deviation of the company's management in capital allocation decisions, and has a certain reference value for identifying high valuation risks and predicting future returns. This factor can also be used in combination with other fundamental factors to improve the effectiveness of stock selection strategies.