capexdriver

Capital Expenditures

Investment in long-term assets (property, plant, equipment).

capexAlso: CapEx

Definition

Capital Expenditures represent cash spent on acquiring, maintaining, or improving fixed assets. CapEx is capitalized on the balance sheet and depreciated over time, making it a key driver of both the balance sheet and cash flow statement.

Why It Matters

CapEx reflects the company's reinvestment in its asset base and growth opportunities. It's a major use of cash and directly impacts free cash flow and enterprise value.

Formula

= CapEx_% × Revenue

Typically modeled as percentage of revenue.

Mathematical Notation

CapEx = CapEx\% \times Revenue

Alternative Approaches

Asset-based= D&A × CapEx_to_DA_Ratio

Maintenance-focused modeling

Bottoms-up= Maintenance_CapEx + Growth_CapEx

Detailed capital planning available

Typical Ranges

Industry-Specific Ranges

Software2%–5%

Retail3%–6%

Manufacturing4%–8%

Utilities15%–25%

Telecom12%–20%

Best Practices

Model CapEx relative to revenue or depreciation. Distinguish maintenance CapEx (sustain operations) from growth CapEx (expand capacity). CapEx should eventually converge to ~D&A in terminal year.

Common Mistakes

✕Not fading CapEx to D&A level in terminal year
✕Ignoring maintenance vs growth distinction
✕Using cash flow CapEx without adjusting for accruals
✕Forecasting declining CapEx % while assuming revenue growth

Pro Tips

✓In terminal year, CapEx should approximately equal D&A for steady state
✓Check CapEx as a multiple of D&A over history to understand reinvestment
✓Look at CapEx/Depreciation ratio to understand if company is investing or harvesting

Dependencies

Affects (Variables that depend on this)

Free Cash Flow

Audit & Governance

Risk Level

Medium

Approval Required

analyst

Sensitivity

internal

Track Changes

Yes

Learning Path

beginner

CapEx is money spent on big assets like factories, equipment, or buildings. Unlike regular expenses, these show up on the balance sheet and get "expensed" slowly through depreciation.

intermediate

Think of CapEx in two buckets: maintenance CapEx (just to keep running) and growth CapEx (to expand). This matters for terminal value.

advanced

Model CapEx as a function of revenue growth. Higher growth typically requires proportionally higher investment to support the business.

Used in Models

This variable is a key driver in the following financial models:

Standard DCF Model

valuation

Learn More

Deepen your understanding with these guided learning paths:

Financial Modeling Fundamentals

beginner•2-3 hours•6 modules

Financial Statement Analysis

intermediate•3 hours•6 modules

Master DCF Valuation

intermediate•2-3 hours•6 modules