Definition
Capital expenditures represent investments in long-term assets that generate future economic benefits. CapEx is categorized as maintenance CapEx (preserving current capacity) and growth CapEx (expanding capacity). The ratio of CapEx to depreciation indicates whether a company is investing for growth (CapEx > D&A) or harvesting assets (CapEx < D&A).
functions Formula
FCF = Operating Cash Flow − CapEx
lightbulb Example
A manufacturer spends $15M on maintaining existing equipment (maintenance CapEx) and $25M on a new production line (growth CapEx). Total CapEx = $40M. With $70M OCF, FCF = $30M.
verified_user Key Points
- Maintenance CapEx sustains current operations
- Growth CapEx funds capacity expansion
- CapEx/Depreciation ratio signals investment intensity
- CapEx-light businesses generate more free cash flow