San Antonio–based Valero spent $1.6 billion on capital expenditures in 2004. As for the future, "there's a big backlog of projects," says Ciskowski. The company's spending will double this year, and could continue to increase for the next several years if Valero's cash flow remains as strong as it has been.

If only other companies were in such a position.

Ronald Fink is a deputy editor of CFO.

Measuring Capex

To find out how the 300 companies in its sample fared in terms of return on capital spending, Pittiglio Rabin Todd & McGrath ranked the top and bottom four companies in each industry according to their 2004 earnings before interest, taxes, depreciation, and amortization divided by the book value of their fixed assets and adjusted to eliminate the balance-sheet effect of operating leases. The resulting ratio — adjusted return on gross fixed assets (ROGFA) — reflects how much a company earns on its property, plant, and equipment. But since that number can be boosted by a decline in asset value, the consulting firm's scorecard also shows how much those companies spent in 2004 and how that amount has changed since 2001. To complete the picture, the analysis also shows a company's degree of capital intensiveness and its revenue growth and shareholder returns.

Granted, ROGFA may not be the most appropriate measure to determine whether to, say, build a new plant or outsource manufacturing. For that type of decision, a metric that takes into account a company's cost of capital is generally more appropriate. But such measures provide too broad a perspective for assessing capex productivity. For one thing, they assume that assets fully depreciated for tax and accounting purposes have no value, when in fact most companies spend money to maintain tangible assets even after they have been fully written off. They also include working capital. As a result, ROGFA can be more useful in helping companies understand how efficiently they are deploying capital on those assets. — R.F.

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