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What is Capex?

Capex is short for “capital expenditures”. A capital expenditure is when the company purchases physical assets either for cash or on credit (assume liability). Capital expenditures can be classified as either for the purpose of growth or maintenance.

For example, if the company needs to replace a machine, then that would be considered maintenance capex. If the company purchases a machine to expand into a new line of business, that would be considered growth capex.

Capex is capitalized and then expensed through depreciation, so capex is not included in EBITDA. However, capex is typically deduced from EBITDA to get to free cash flow (i.e. free cash flow bridge) since it is a cash expense that the company will incur (at some level) on an annual basis.

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