Capital expenditure (capex)
Capital expenditure, or capex, is money spent on assets expected to provide value for more than a year — equipment, vehicles, leasehold improvements, a building — as opposed to day-to-day operating costs. Buyers split it further into maintenance capex, which just keeps the business running as-is, and growth capex, which expands it.
The distinction matters because earnings measures like SDE are built from the income statement, and capex mostly does not appear there directly — it shows up as depreciation instead, which rarely reflects what the equipment will actually cost to replace. A business can look highly profitable on paper while quietly needing a large equipment replacement the numbers never flagged.
Maintenance capex vs. growth capex
- Maintenance capex — replacing a worn oven, a delivery vehicle, a server — keeps the business at its current level
- Growth capex — a second location, new production capacity — is optional and discretionary by comparison
Why buyers ask about it directly
A seller’s add-backs sometimes strip out costs that were genuinely necessary to keep the business running, which flatters earnings without flattering reality. Asking what the business has actually spent on maintenance capex over several years, and what is coming due soon, tests whether the reported earnings can really be sustained without a near-term equipment bill.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryEquipment and Asset Condition Checks Before Buying a Business in Ontario
- 02Treadstone LawLegal commentaryHow Much Is a Small Business Worth? Valuation Basics for Ontario Buyers
- 03Treadstone LawLegal commentaryHow to Read a Business's Financial Statements Before You Buy in Ontario
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