CapEx (Capital Expenditures)

Maintenance vs. Growth CapEx

Maintenance CapEx is the spending required to keep the business running at current capacity — replacing worn equipment, refurbishing vehicles, upgrading infrastructure. This is a real, recurring cost of operating the business.

Growth CapEx is discretionary investment to expand capacity, enter new markets, or increase throughput. A buyer can choose not to grow; they cannot choose not to maintain.

For valuation purposes, only maintenance CapEx should reduce the earnings figure used for pricing. Growth CapEx is an investment decision made after acquisition.

Finding CapEx in Financial Statements

CapEx doesn't appear on the income statement — it goes on the balance sheet and is expensed over time as depreciation. To find CapEx:

• Look at the cash flow statement (investing activities section)
• Compare balance sheet equipment values year-over-year, adjusted for depreciation
• Ask the seller directly: what did you spend on equipment in the last 3 years?

CapEx as a Deal Variable

In capital-intensive industries, future CapEx requirements should influence both price and deal structure:

• A fleet of vehicles averaging 8 years old requires near-term replacement
• Aging manufacturing equipment may require major capital investment within 2-3 years
• Owned real property may have deferred maintenance that becomes the buyer's capital problem post-close