A lot of items that we see regarding non-current assets, such as capital expenditure, depreciation, accumulated depreciation, gross and net PP&E, can be used to help measure the performance of a business and indicate where it's going in the future.

Our first metric is the capital expenditure ratio, or CapEx ratio. This takes capital expenditure and divides it by sales. It looks at the investment relative to sales. If we saw that this ratio was increasing, this would suggest future growth for the company. So, for instance, if I saw CapEx going up and up and up compared to sales, I would hope that increased CapEx this year would lead to increased sales next year and hopefully again even further increased CapEx next year and even further increased sales the year after. Next up, we'll look at the average age of PP&E, property, plant, and equipment. To calculate this, we take accumulated depreciation and divide it by gross PP&E. This appraises the age of PP&E.

To take an example, let's say the accumulated depreciation was 95 and the growth PP&E was 100. Uh oh, that suggests that my PP&E, we've already used 95% of its life. That means my assets are quite old, quite tired, and it's going to suggest that we have an aging asset base which will require investment pretty soon. Next up, the reinvestment ratio. This takes capital expenditure and divides it by depreciation, and it asks, "Are depreciating assets being replaced?" Let's have a think. Imagine my depreciation was 100 and my capital expenditure was 200. That sounds really healthy. My assets have lost value by 100 and I am more than replacing them, I'm more than replacing, in fact, I'm actually growing the business. However, if my depreciation was 100 and my CapEx was 100, that would be a little bit worrying. In an inflationary environment, if I'm depreciating assets of 100 and I probably bought those assets a few years ago, just to replace them probably will cost me 105, 110, or 115. So to see CapEx of only 100 would indicate, oh, dear, that the company seems to be doing the opposite of growing, it seems to be shrinking its asset base, but that was in an inflationary environment. So three useful metrics there, all involving things regarding non-current assets to help measure the performance of a business.