CapEx in Valuation

I remember working on a DCF for a fast-growing medical device company back in my EY days.

Revenue was projected to grow aggressively.

Margins were improving.

The story looked compelling.

But one line stopped me.

CapEx = Depreciation.

It didn’t make sense.

If the business is expanding — how can CapEx stay flat?

That was the moment I started questioning something more fundamental:

Whether our models actually reflect how capital decisions are made in reality.

At its core:

FCF = EBITDA – CapEx – ΔNWC – Tax

Get CapEx wrong, and everything breaks.

So let me ask:

When you build a model — do you actually know what your CapEx number represents?

Or is it just a simplifying assumption?

Inside a company, CapEx is not a formula.

Decisions are driven by:

Companies don’t think in “maintenance vs growth.” They think in decisions under constraints.

Outside the company, we approximate.

Common approaches include:

These are useful.

But they remain approximations.

So think about this:

How confident are you that your CapEx assumption reflects what the company will actually do?

This is where most valuation models break.

But the real issue isn’t the formula —
it’s how capital decisions are actually made inside the company.

👉 The gap becomes obvious once you look at real-world CapEx decisions.