What is Capex? How to Analyze Capital Expenditure of Indian Companies
Capex is the money spent on building or buying long-term assets.
Capital Expenditure (Capex) is the money a company spends on acquiring, building, or improving long-term assets like factories, machinery, technology, and infrastructure. It appears in the investing section of the cash flow statement. Capex is the investment that drives future growth.
When Reliance Industries spends Rs.1,50,000 crore building Jio's telecom network, this is capex. The network generates revenue for decades. Unlike operating expenses consumed immediately, capex creates assets that produce value over many years. The quality of capex decisions determines long-term shareholder returns.
Free Cash Flow = Operating Cash Flow - Capex
If a company spends Rs.2,000 Cr on new factories and Rs.500 Cr on maintaining existing ones: Total Capex = 2,000 + 500 = Rs.2,500 Cr
What is maintenance vs growth capex?
Maintenance capex replaces worn-out assets to maintain current capacity. Growth capex expands capacity or enters new areas. Maintenance is necessary to sustain the business. Growth is discretionary and should generate returns above the cost of capital. Companies rarely disclose this split, but depreciation approximately equals maintenance capex.
How to judge if capex is productive?
Compare capex with subsequent revenue and profit growth. If a company spent Rs.5,000 crore in capex over 3 years and revenue grew Rs.3,000 crore annually as a result, the investment is productive. If revenue did not grow, the capex was wasteful or has not yet matured.
Analyze capex trends and investment returns on Stockk Equity. Learn to evaluate capital allocation at Stockk Knowledge Center.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice. INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410. For any complaints pertaining to securities broking please write to [email protected], for DP related to [email protected].
Frequently Asked Questions
Is high capex good or bad?
Depends on quality. High capex in a growing industry with strong demand is positive (building capacity to meet demand). High capex in a declining industry is risky (investing in a shrinking market). Always evaluate capex in the context of industry growth and competitive position.
How does capex affect free cash flow?
Capex directly reduces FCF. Heavy capex periods show low or negative FCF. Once the capex phase ends and new assets generate revenue, FCF typically expands. This is the capex-to-FCF lifecycle. Use StockkAsk at stockk.trade/stockkask to evaluate capex efficiency over multiple years.
What is capex intensity?
Capex divided by revenue. IT companies spend 3 to 5% of revenue on capex (low intensity). Telecom and steel spend 15 to 25% (high intensity). High capex intensity means the business requires continuous heavy investment to operate and grow.
Can capex be funded by debt?
Yes, and many large projects are funded through a mix of internal accruals and debt. The key is whether the capex generates returns above the cost of borrowing. If the project earns 18% return and borrowing costs 10%, the debt-funded capex creates value.
Where do I find capex in financial statements?
Cash flow statement under investing activities. The line items typically show purchase of property, plant and equipment (negative number indicating cash spent) and sale of assets (positive number). The net capex is usually the purchase amount.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410
