Here are some manufacturing companies that are growing without spending on new equipment and land
08-May-2018 •Research Desk
Capital expenditure, or capex, is the expenditure made by a company on its physical assets such as machinery and infrastructure. For many businesses, capex is an integral part. Take for instance a company in the business of power generation. In order to expand, it needs to keep buying more equipment and land and hence keep doing capex. Because capex directly correlates to expansion, it is generally deemed to be a positive phenomenon.
Digging deeper into capex, we can categorise it into two: maintenance capex and growth capex. Maintenance capex is the capital expenditure required to keep the current operations going. For instance, a power plant may have to replace its boiler, say, after 10 years. When the power plant replaces its boiler, it doesn't really expand its operations but maintains them. Growth capex is the capital expenditure done to expand operations. So, if the power plant buys 10 more boilers, the expenditure so incurred is growth capex.
How do you know if a company is doing maintenance or growth capex? See the capex in light of depreciation. If it is roughly equal to depreciation, it's maintenance capex. If it outgrows depreciation, it's growth capex.
The obvious question that arises is if a company is just doing maintenance capex, is it really doing well? Yes, if the profits and cash flows are sound. In fact, generating growth from existing establishment is a better sign of managerial competence and strength of business model. Here are some companies which are engaging in just maintenance capex. Nevertheless, they have shown sound sales growth and growth in operational cash flows (CFO).
In order to arrive at this list, we applied the following filters:
From this list, services companies were removed as they normally don't involve capex and are run on human capital.
