LBO Assessment - CAPEX/NWC Requirements
When analyzing a potential LBO target and try to make a judgement regarding its CAPEX/NWC requirements and Free Cash Flow size, are there any % thresholds we can use to determine if the CAPEX/NWC requirements are high in general?
Same goes for Free Cash Flow conversion/ % of FCF in terms of revenue. It is of course very dependent on the industry, but can any seniors give some insights into how one can make a first judgement?
Thanks in advance.
I look at the cashflow consumed by WC and Capex in relation to the business' EBITDA. Each industry would have a certain threshold in terms of EBITDA conversion to FCF, for example if only 40% of your EBITDA becomes cashflow then it might tell you there is a lot of cash absorption from WC, Capex or other things (taxes, interest, etc.)
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