Hi all the monkeys out there!
Reading Damodaran's little book of valuation, I was wondering why he writes that Capex-D&A= investment in long-term assets but I don't get it. Is that because it means investment in new assets? Anyone could help?
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Anyone?
Depends on what you include in Capex ?
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.
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..
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