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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Nya_Quy who wrote (62662)	10/9/2019 7:36:50 PM
From: William Cloutier	1 Recommendation Recommended By E_K_S Read Replies (1) \| Respond to of 78753

EBITDA minus maintenance Capex Hi Nya Quy, Be careful when you subtract maintenance Capex. Even more if you use future growth as an input to your valuation process. Sometimes, I think a bug appears in a valuation mechanism: future growth is made possible by "growth Capex". So, if we only subtract maintenance Capex from Ebitda (or operating cash flow), we should subtract future growth, that is made possible by new capital investments in operations or "growth Capex", from future results. Ebitda is often used as a substitute for FCF so we'll use this measure instead to show what I think is the bug. The objectif of FCF is to account for transactions when there's a cash inflow or outflow. In order to have future operating inflows, we need to invest capital in operations. When growth Capex is not subtracted in our valuation, it just vanish and is never taken into account in the valuation engine because future depreciation charges are added back to OCF or Ebitda. I can be wrong on this, I just always had a malaise with this practice. Good investing Will