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.
CAPEX: Why the most important input is invisible to outsiders
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.
Working capital: Where ratios hide real decisions
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.