FORECASTING CAPEX

Please refer to Apples 2015 cash flow statement.

A. Approximately how much did Apple spend on CAPEX in 2015?
Apple spent approximately 11.2 billion in CAPEX in 2015 per the Investing
activities section in the cash flow statement. This is the PP&E number in the
Investing activities section, netted with any sales generated from PP&E.
B. What are three questions about Apples business to which you would
want to know the answer in order to begin developing a CAPEX
forecast for 2016?
The first question we want answered is how relevant are capital intensive
activities undertaken by Apple in terms of being a driver for sales for the
company. Forecasting PP&E is useless if it is not an important driver of future
sales and profit. On the other hand if PP&E has proven in the past to be a
highly relevant indicator of sales and profit then forecasting CAPEX using a
constant turnover method would be very useful.
The second question we want to know is how stable the inventory turnover of
Apple is. Because by using the turnover method to forecast CAPEX we
assume a constant turnover ratio over time, this means if Apples ratio
fluctuates heavily over time, or if 2015 was a heavily acquisitive year this
could skew our forecasts. Since the turnover method assumes the turnover in
2015 is the only number we go by to forecast future CAPEX we need to be
sure that the turnover ratio calculated in this year is a good representation of
Apples typical year-to-year activities.
Finally wed want to know approximately how much Apples sales numbers
grow year by year since we use the forecasted sales to calculate a forecasted
CAPEX number. This could mean having to look at Apples sales performance
over the past few years and track how its sales have grown, and then coming
up with a reasonable growth level for the next few years to forecast CAPEX
with. Incorrect forecasting of sales could have large consequences: not only
do you incorrectly forecast sales, but you also inaccurately predict other
crucial values which rely on the turnover method such as inventory and
CAPEX.