Why I deliberately exclude CAPEX and working capital assumptions

This part steps away from accounting mechanics and focuses on methodology.

In cross-border valuation, capital expenditure and working capital assumptions
are often treated as inputs to be estimated.

In practice, they are something very different.

From the outside, CAPEX is often modeled using:

• Historical averages
• Revenue-based ratios
• Peer benchmarks

These approaches look reasonable. But they miss how CAPEX decisions are actually made.

From my experience as a CFO, CAPEX is not forecasted from history.

It is the outcome of an internal process:

• Investment proposals aggregated from business units
• Cash flow capacity and current cash balances
• Financing constraints and capital cost optimization

Only after this process does the final investment budget emerge —
sometimes requiring external funding, sometimes requiring projects to be delayed or cancelled.

None of this is visible in public financial data.

The same applies to working capital.

Externally, working capital is often projected using historical turnover ratios.

Internally, it reflects:

• Trade relationships and bargaining power
• Supplier and customer policy choices
• Inventory strategy and risk management
• Ethical and operational constraints

These are operational decisions, not statistical trends.

Treating them as mechanical extensions of the past creates an illusion of precision.

This is why I deliberately exclude forward-looking CAPEX and working capital assumptions from my ASEAN dataset.

Not because they are unimportant —
but because treating them mechanically destroys comparability across countries and companies.

Including weak assumptions does not improve valuation.
It simply embeds discretion where structure is required.

Cross-border valuation does not break at the modeling stage.

It breaks before modeling begins —
when internal decisions are replaced by external proxies that look objective but are not.

Models still run.
Numbers still discount.

But the output reflects assumptions, not economics.

This is not an argument against valuation models.

It is an argument for intellectual discipline.

Before refining EBITDA, before estimating free cash flow, before debating discount rates, we must be clear about which elements can be defined externally — and which cannot. Otherwise, valuation may look precise, but fail to reflect economic reality.

Dai Kadomae, CFA, CPA Founder, GARYO FINANCE | LinkedIn