Capex
DCFCash spent on long lived assets, which never appears on the income statement except through depreciation.
Also written: capital expenditure
Capital expenditure buys things that last: property, plant, equipment, capitalised software. Because the benefit spans years, the cash goes out immediately but the cost is spread across the asset's life as depreciation.
That timing mismatch is why capex is subtracted explicitly in a free cash flow build. It is a genuine and often very large cash cost that the income statement never shows in the period it is incurred.
The useful split is maintenance versus growth capex. Maintenance is what the business must spend simply to keep operating at current capacity; growth capex buys additional capacity. Only maintenance is truly unavoidable, which is why the split matters for assessing how much cash the business could produce if it stopped expanding.
As a rule of thumb, capex converging toward depreciation is the signature of a business in steady state. Capex persistently far below depreciation is either a genuinely asset light model or a company under investing, and the two look identical for several years.
Worked example
A manufacturer spends 95 of capex against 80 of depreciation, so it is investing 15 above replacement.
Management indicates maintenance capex is about 70, so 25 is growth capex. Free cash flow before growth investment is therefore 25 higher than the headline figure suggests.
A company spending 40 against 80 of depreciation is either genuinely asset light or under investing, and the two look identical for several years.