Hi
I got a interview question: how do you model capex?(what does it link to)
Usually my real model just works with management forecast. So capex is a input not a link on my model. When I talk to other ppl, they told me to model capex is just to link to your depreciation deducted amount each year. Can anyone confirm this or add to it?
Thanks
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There are several ways to model capex. 1. As you pointed out correctly you can just use management forecasts. This can be from the business plan in a live deal or from investor presentations if the company has publicLly traded securities. 2. Capex % sales - the quickest way, usually used for most forecasts 3. Capex % depreciation of PP&E - works well for maintenance capex, will usually converge over the forecast period, as the assumption is that you replace what you depreciate
What you are referring to is the third way, where you just assume that capex is a multiple of D&a if the company is growing and then converges to equal D&A as you go further into the forecast period.
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