Term · Cash Flow & Working Capital
Capex
In briefCapex refers to cash outflows for the acquisition or expansion of tangible and intangible assets. In capital-intensive business models this item is often the largest cash outflow and shapes the later financing requirement.
Definition
Expenditure for the acquisition or expansion of property, plant and equipment and intangible assets.
How it is calculated
Formula. The sum of capital expenditures per the cash flow statement (investing section).
Why it matters for small caps
For capital-intensive small caps, capex is often the largest single item and substantially determines future financing requirements.
Common misreadings
- Maintenance capex (to sustain the business) is often not distinguished from growth capex, which distorts the interpretation of free cash flow.
In the process
Frequently asked
What is capex (capital expenditure)?
It is expenditure on long-lived assets such as plant, machinery or intangibles. In the cash flow statement it appears in the investing section.
How is capex used in analysis?
You sum the investing cash outflows and set them in relation to revenue or operating cash flow. This allows an estimate of a business's investment requirement.
Why should you separate maintenance and growth capex?
Investments merely to sustain the business burden free cash flow differently from growth investments. Anyone who mixes the two easily misinterprets free cash flow.
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.