Investment in long-term assets

Authored by: Certified Private Equity Professional - 2nd Year AssociateCertified Private Equity Pro

dick_fluid

Senior Gorilla

HF

8y

Depends on what you include in Capex ?

Uptown Girl

Senior Gorilla

?

8y

I think it has to do with the fact that D&A is a proxy for the wear and tear of existing long-term assets, so that if your CAPEX = D&A you are only maintaining your long-term asset base. So, CAPEX - D&A is the investment in new assets.

Billion with a B

Human

IB

8y

D&A is a proxy for short-term expenditures on fixed assets, in the sense that it is sometimes considered to be part of the core cash producing portion of operations. In other words, you accumulate depreciation on the balance sheet similar to other current assets like prepaids, until it is expensed on the income statement. CAPEX has a useful life typically 1+ years, or long-term. Subtracting the current portion of CAPEX leaves you with just the long-term piece of expenditure on fixed assets. That's how I look at it..

Authored by: Certified Investment Banking Professional - 1st Year AnalystCertified Investment Banking Pro

Billion with a B

Human

IB

8y

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