How To Calculate Maintenance Capital Expenditure

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In this video I explain exactly how to calculate maintenance capital expenditure. Maintenance capex is a number we need to find in order to calculate the all important Cash Flow For Owners figure, which is a best representation of the cash returned to shareholders in the form of dividends or stock price appreciation.
I discuss what capital expenditure is, how it breaks down into two categories (maintenance and growth), where to find capex in an annual report, and how to estimation the proportion of capex which is for maintenance.
Cash Flow For Owners Explained!
▶︎ • Cash Flow For Owners E...
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Disclaimer:
The information in this video is general information only and should not be taken as constituting professional advice from Hamish Hodder.
Hamish Hodder is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances.
Hamish Hodder is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this video.

[@RayJuang]

Thanks for putting all these videos up. I've been trying to understand a lot of the terminology in financial 10-K/10-Q statements and all of your videos make understanding the terminology easier to understand. I started watching some of your other videos and this one was very insightful about the breakdown of capex. Thanks so much again for making these intro videos.

[@Joyce-jg4ey]

Thank you for all the teachings! Your explanations are clear, and are so easily understood!

[@EM-fp4ny]

I couldn't be more grateful for finding your videos and your wonderful way to teach us, even the fly is a funny part of the video, shows how great human being you are.

[@TuanTran-sl3lv]

Thanks again for your video Hamish

[@rodriguezmontes8242]

Thanks so much for the info. I have seen your videos and I have learned a lot not like "buy because of low pe" like most channels. I like to be conservative so I just take capital expenditure that, maintenance.

[@alexlerner8327]

well, that wraps it in common sense and gives it perspective. I couldnt understand all the formulas I found online

[@marianadavila323]

Thanks Hamish, very useful content

[@MubarackConsulting]

Great teachings. Thank you very much!

[@KarismatikMusic]

Amazingly put.

[@TuanTran-sl3lv]

Thanks for your video Hamish

[@renetamayo42]

Excelente video!! De verdad me fue de gran ayuda

[@anderskrusell5238]

Thanks Hamish - officially a fan of your channel :-)

[@RemiStardust]

4:30 You could've green-screened in an outdoor setting, so the fly would fit right in! :) Great content. Good idea to search for 'capex', rather than getting bored on page 40 out of 120 pages of an Annual Statement and never bothering to look at capital expenditures! You could also have mentioned the Cash Flow statement - investing activities, which should match capex.

[@Cindy-jg4zw]

thank you for this amazing information! i have a question: what is the difference between maintenance expenditure vs revenue expenditure? thank you!!

[@sherwinlouie2191]

Thanks

[@davidprovest]

Great video Hamish! Just wondering how Cash Flow For Owners is related to Free Cash Flow?

[@wunjo8586]

The title of the video "How To Calculate Maintenance Capital Expenditure" but there is no calculation, good job!

[@alexisgc19]

Very clear explanation. I saw that in some cases the analysts uses the D&A as a CAPEX proxy, but the problem is that it could be affected in case the company acquired another company. How crazy do you think is to use an arithmetic average of the last "N" CAPEX values? And what "N" value do you recommend for this operation?

[@danieldelvillar8328]

Some make a calculation D&A-capex for 5 years per year calculation. if you see a great difference maybe because they acquired that company and may apply to growth the rest

[@Nuganics]

Gains can be made here as most see capex.increase and decrease in eps but spent into a most can be a huge hidden positive especially if expenditure on a most. Carl icahn gas port investment is a great most as basically a monopoly but most just saw decrease in eps.

[@leecarmen8669]

very clear and just hit suscribe button

[@businessman1060]

Also one method to estimate the maintenance Capex is to take average of the last some years Capex ...as the average reduce the one offs

[@ShabangalangMoto]

Another way to estimate maintenance capex is to us depreciation as a proxy

[@gauravthadanii]

Are capital leases (rent payments of a property) included in capital expenditures?

[@drustan6890]

can depreciation be considered as maintenance capital expenditure?

[@sanjaysethi646]

Love❤😘 u bro

[@antjamescox]

Would you be able to do this on Australian companies? Such as EOS.ASX. Your examples are always American, and quite often Australian annual reports don't have the (search term) capital expenditure you are talking about or have a paragraph describing growth vs maintenance.

[@FunnyAsian00]

Awesome video!!!! I'm trying to to calculate owner Earnings from book invested by Danielle town do you have any book recommendations in this topic more details? Thx 🇨🇦🇨🇦

[@ArvindBhave]

You did not redeem the promise held out in the heading of the video. I did not learn "how to calculate maintenance capex" but I heard that it is not a terribly important calculation to stress about. FCF will do. You could've used "why I do not calculate maintenance capital expenditure" cheers!

[@josephdillon-redmile4447]

Can't find the capital expenditure anywhere on Seagates 2019 annual report

[@alexlerner8327]

I am using QuickFS and I am not seeing capex numbers for banks and insurance companies. When a bank opens multiple locations, isnt that a capital expenditure? I had also looked in the 10-K statement for Aflac (AFL) -- there is no "capital expenditure" phrase anywhere in that document. So what numbers do you use for banks? Thank u

[@darrenespinosa9861]

What about maintenance capex of Intangibles ?

[@siggiAg86]

A question, are capital light companies - like Facebook - more prone to being valued higher as they don't have to do loads of capex?

[@jbjergh]

Can you recommend a book that teach about all these important financial statement concepts. I know Phil Towns books, but I find you are going a step further.

[@fanboy-industries]

Take accounting 101.

[@biswarupdas8480]

Can I say cash on investment as maintenance capex

[@sanjays488]

How to estimate if we get a negative free cash flow in few years ?

[@ArvindBhave]

Wouldn't repair of equipment or buildings be 'expense' rather than capital expenditure? Is all or any repair of equipment (maintenance of equipment) treated as capital expenditure?

[@samuelball1991]

Can you use cash flow statement PP&E as a estimate for CapEx and the Depreciation & Amortisation as an estimate for MainCapEx? Cheers

[@gauravthadanii]

depreciation is not capex, as it is not a cash exp. it has been paid for already when the plant or machinery was bought and now is being deducted just to keep track of it. no cash outflow happens in depreciation.

[@tinypurpleplanet]

Hi Hamish, I am looking at Ulta Beauty. I notice that the 2018 fiscal year number for maintenence expenditure is $319,400, whereas in the 2019 'Fiscal Year Ended' reports $319,400. Is there a difference between fiscal year and fiscal year ended? I am not sure which number to use for which year. Which of these would you deduct from capital expenditure to arrive at maintenance capx? - New, Remodeled, and Relocated Stores - Merchandising and Refreshed Stores - Information Technology Systems - Supply Chain - Store Maintenance and Other thank you :D love your videos

[@RafitoMembroza]

The term "fiscal year-end" refers to the completion of a one-year or 12-month accounting period. The fiscal year is the period used for calculating annual financial statements. A company's fiscal year may differ from the calendar year, and may not close on December 31 due to the nature of a company's needs.

[@gauravthadanii]

the bottom 4 are maintenance capital expenditures and the first one is growth capex, in my opinion.

[@julioovalle2693]

Very good explanation. Now, what would you say about a company that makes it really hard to find the capital expenditures on their annual report? @Hamish

[@HamishHodder]

Often CapEx is described as Property, plant & equipment. You will be able to find the figure in the 'management's discussion and analysis' section of the annual report, under 'Investing Activities"

[@user-dm1ov8py5y]

Why do u exclude growth expenditures?

[@TheWhisperPT]

Appears to me that the goal is to calculate CF4O and mixing growth/investments does not accurately tell us the cashflow for owners since the company does not need the growth to operate the business therefore shouldnt be mixed with the CF4O. Its not like he excludes it or ignores it, he just uses ROIC for the growth metric in a company instead of maintenance + growth expenditure to calculate CF4O and mixing both. Different metrics, different boxes to tick. In the end they all need to be ticked and mixing them up may create errors in a business assessment.

[@user-dm1ov8py5y]

@@TheWhisperPT Awesome clear, thanks!

[@alexlerner8327]

for a bank, such as Wells Fargo, quickfs does not show any sort of capex -- how can that be? I have checked PNC as well -- same story. Is that something the banks dont show/have?

[@MueedVasani]

did you find a solution

[@alexlerner8327]

@@MueedVasani no, I didnt. Left it alone for now

[@blaiseparnell6432]

More often than not you'll find that CapEx is really just Property, Plant and Equipment. If you take a look at a bunch of companies that do show CapEx on their sheets, you'll see its the same figure or extremely close to Property Plant and Equipment found in the "Investing Activities" section of the Cash Flow. Also, if a company does not express what its Maintenance CapEx is in their reports, I generally just assume Depreciation and Amortisation Expense IS the Maintenance CapEx. Therefore, If there isn't enough data on the financials as you've describe - finding a Owners Earnings figure can basically be: Cash from Operations Minus Depreciation and Amortisation Equals Owners Earnings Its not 100%, but its the best method IMO when no other data is available

[@sarahfuentes8182]

@@blaiseparnell6432 Would you add PP&E in as a negative number when it is negative or change it to a positive?

[@blaiseparnell6432]

​@@sarahfuentes8182 It's a little tough to explain through text but I'll give it a go Generally speaking, PP&E (AKA Capital Expenditure) is used in calculating Free Cash Flow (Cash from Operations minus CapEx). However when working out owners earnings you only need the Maintenance Capex (Cash from Operations minus MainCapEx) where MainCapEx can be Depreciation and Amortisation Expense if no other data is available. PP&E as seen in the Investing Cash Flow segment isnt a negative number per se - its just a subtraction (if that makes sense). So to work out the Free Cash flow of a business where the PP&E is $-1200 for example would just be: Cash from Operations Minus $1200 Hopefully that helps, sorry its hard to be clear through this text.

[@asianboss6355]

I thought that fly was in my home, that's how tired I am

[@Northstar2000]

Stop doing homework and go to sleep

[@matcvnt6887]

I was here since 5k subscriber who is gonna be here next year at 100k? I'm investing in Hamish Hodder youtube channel

[@mm0dk0ur]

Very shallow video, i should have just skimmed quickly to the end of the video

[@Tuxster3]

This is a totally useless video. You did not explicitly show how to calculate maintenance capital expenditures. This is not surprising, because in particular letter to shareholders, Buffett himself doesn't even show how he explicitly calculates maintenance capital expenditures. You need to change the title of your video.

[@onyxstone4618]

Hamishs Capital Expenditure on fly spray is in the negative.

[@TuanTran-sl3lv]

Thanks again for your video Hamish