Metric Explainer: Capital Expenditure (Capex)
Money spent on buying or upgrading factories, equipment, land, and other longterm assets — the investment to sustain and grow the business. "Capex matlab com...
Simple definition
Money spent on buying or upgrading factories, equipment, land, and other long-term assets — the investment to sustain and grow the business.
🗣️
"Capex matlab company ne naye factories, machines, ya equipment mein kitna paisa lagaya. Yeh future growth ke liye invest kiya jaata hai."
Why it matters
- FCF driver — FCF = CFO − Capex. High capex reduces free cash flow available to shareholders
- Growth signal — increasing capex often means the company is investing in capacity expansion
- Future depreciation — today's capex becomes tomorrow's depreciation expense
- Maintenance vs Growth — understanding the split reveals true growth investment
Formula
Capex = Purchase of PPE + Purchase of Intangible Assets
Found in the Cash Flow Statement under "Investing Activities."
Types of capex
| Type | Purpose | Example |
|---|---|---|
| Maintenance capex | Replace old/worn-out assets | Replacing old machinery |
| Growth capex | Expand capacity or enter new markets | New factory, new product line |
| Regulatory capex | Meet compliance/environment norms | Pollution control equipment |
Maintenance vs Growth split
Companies rarely disclose this split. A rough estimate: Maintenance capex ≈ Depreciation. Capex above depreciation is likely growth capex.
Capex intensity — by sector
| Sector | Capex as % of Revenue | Classification |
|---|---|---|
| IT Services | 3–6% | Very light |
| FMCG | 4–8% | Light |
| Pharma | 5–10% | Moderate |
| Auto (OEM) | 8–15% | Moderate-heavy |
| Steel/Cement | 10–20% | Heavy |
| Telecom | 25–40% | Very heavy |
| Oil & Gas | 20–30% | Very heavy |
Capex cycle
During the capex phase, FCF drops and ROCE may fall. This is normal. The key question: will the new capacity generate adequate returns?
Common mistakes
Mistakes to avoid
- Capex = bad — Wrong. Capex is investment for future growth. No capex means no growth
- Ignoring CWIP — Capital Work in Progress shows how much capex is ongoing but not yet completed
- Not comparing capex to CFO — If capex > CFO for many years, the difference is funded by debt
- Lumpy vs smooth capex — Some companies do capex in large lumps every 3–5 years. Don't compare a capex year with a non-capex year
Real example: Light vs Heavy capex
| Company | Revenue (₹ Cr) | Capex (₹ Cr) | Capex/Rev | CFO (₹ Cr) | FCF |
|---|---|---|---|---|---|
| Infosys | 1,50,000 | 5,000 | 3.3% | 28,000 | 23,000 |
| JSW Steel | 1,70,000 | 20,000 | 11.8% | 25,000 | 5,000 |
| Bharti Airtel | 1,50,000 | 35,000 | 23.3% | 55,000 | 20,000 |
Infosys spends very little on capex → almost all CFO becomes FCF. JSW Steel and Airtel need massive capex to stay competitive, consuming most of their CFO.
Red flags
- Capex > CFO for 3+ consecutive years — funding capex with debt
- Large capex without corresponding revenue growth in 2–3 years — potential value destruction
- Capex cuts when competition is investing — may lose market share
- CWIP growing without projects completing — possible project delays or cost overruns
Related metrics
- FCF — CFO minus Capex
- CFO — Cash from operations that funds capex
- Depreciation — Past capex showing up as annual expense
- PPE — The assets created by capex
- Fixed Asset Turnover — Revenue generated from fixed assets