Term · Cash Flow & Working Capital
Capex intensity
In briefCapex intensity shows what share of revenue or operating cash flow flows into property, plant and equipment and long-term assets. For small caps it helps determine whether growth is internally financeable or constantly requires new capital.
Definition
The share of revenue or operating cash flow required for investments in property, plant and equipment and long-term assets.
How it is calculated
Formula. Capex intensity = capex ÷ revenue; alternatively capex ÷ operating cash flow.
Why it matters for small caps
In the small-cap segment, capex intensity determines whether growth is internally financeable or constantly requires new capital injections.
Common misreadings
- A low EV/EBITDA is overestimated when high capex intensity eats up free cash flow.
In the process
Frequently asked
What is capex intensity?
It measures how investment-heavy a business model is. The basis is the ratio of investments to revenue or cash flow.
How is capex intensity calculated?
You divide capex by revenue or, alternatively, by operating cash flow. A high value indicates a capital-intensive business.
Why can a low EV/EBITDA be deceptive here?
A high capex intensity can consume free cash flow, even though the EBITDA multiple appears cheap. The valuation then looks more attractive than it is.
Related terms
Sources
Primary
IFRS Foundation – IAS 16 Property, Plant and Equipment
https://www.ifrs.org/issued-standards/list-of-standards/ias-16-property-plant-and-equipment/
https://www.ifrs.org/issued-standards/list-of-standards/ias-16-property-plant-and-equipment/
Methodology
IFRS Foundation – IAS 38 Intangible Assets
https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/
https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.