1. How to Model Capital Expenditures (CAPEX) – 3 Proven Approaches

📅 Take just 3 minutes to explore 3 practical ways to plan your capital expenditures—and instantly improve the way you model future investments.

Whether you’re building a high-level forecast or a detailed bottom-up model, modeling CAPEX properly is critical for planning long-term asset growth, depreciation, and cash flow.

Here’s how to approach it like a pro:

💰 3 Ways to Model CAPEX:

1️⃣ Based on Business (Sales) Volume

This top-down approach links capital expenditure to business growth.

🔹 Use assumptions like CAPEX-to-Revenue or Fixed Assets as a % of Revenue.

🔹 Useful when detailed project planning isn’t available, or you need a quick, scalable model.

🔹 Ideal for early-stage planning or scenario modeling.

🛠️ How to apply it:

  • Estimate total fixed assets as % of revenue
  • Allocate value across projects
  • Calculate depreciation based on asset base

2️⃣ Based on Realistic Investment Needs

This project-based approach starts from the bottom up.

🔹 Create a schedule of planned investments per project.

🔹 Focus on what’s needed—when and where.

🔹 Reflects the real scope, timeline, and cost of each investment.

🛠️ How to apply it:

  • Build a project list with timelines
  • Forecast CAPEX adjusted for disposals
  • Calculate depreciation and carrying value per year

3️⃣ Based on Investment Plan and Useful Life

This method brings in asset-level detail, ideal for more accurate and granular planning.

🔹 Input individual asset costs, salvage values, useful lives, and acquisition dates

🔹 Use Excel functions like IF and EOMONTH to automate timing

🔹 Your model will output accurate depreciation schedules and asset balances

🛠️ How to apply it:

  • List all planned assets
  • Input cost, start/end dates, and depreciation methods
  • Use formulas to calculate carrying values over time

📊 Why This Matters

Accurate CAPEX modeling affects your:

✔ Cash Flow Forecasts

✔ Balance Sheet Projections

✔ Depreciation Expenses

✔ Financial Ratios & KPI Analysis

Whether you’re working on strategic planning, budgeting, or a company valuation, these 3 methods provide the structure, clarity, and flexibility you need to model investments effectively.

Want to see all 3 approaches in action?

🎥 Watch the full walkthrough here​

You’ll see how each CAPEX modeling method works in Excel—with practical tips, formulas, and real examples.

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