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https://boards.fool.com/joe-page-298-of-the-second-edition-of-cash-flow-26133772.aspx
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| Subject: Re: First Marblehead @ $32 | Date: 11/27/2007 9:36 AM | |
| Author: hheiserman | Number: 1410 of 1817 | |
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Joe - Page 298 of the second edition of Cash Flow and Security Analysis has an excellent section on maintenance capex. My spreadsheet incorporates some of the analytics cited in this book. A simpler approach is to assume maintenance capex equals: depreciation + (depreciation x 25%). Thus, discretionary capex = total capex - (depreciation + (depreciation x 25%)). Discretionary capex is a source of cash in the defensive income statement. The reason I use 25% is to take into account the overall rate of inflation plus the cost of maintaining fixed capital in such a way as to stay competitive with other companies in the same industry. 25% is probably conservative in most cases, but in this business it pays to play it safe. If maintenance capex is a big number, then estimate maintenance depreciation and treat as a use of cash. Hewitt |
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