Growth capex

Growth capex buys something new: a plant, a store, a production line, an addition to the fleet. It is discretionary in a way maintenance capex is not, which is why it is the first line cut when a business comes under pressure and the first line questioned when a forecast looks generous.

In a forecast it should tie to the revenue build rather than to a percentage of sales. If revenue comes from opening fifteen stores a year, growth capex is fifteen fit out costs. That link is what makes the revenue plan and the capex plan one plan, instead of two unrelated assumptions that happen to share a spreadsheet.

It also supplies a check a percentage of revenue can never give. Divide revenue by net operating assets to get asset turnover, then ask whether the growth capex in the model adds enough assets to carry the revenue the model forecasts at that turnover. Where it does not, the two forecasts describe different companies, and saying which one you would move is the actual analysis.

The distinction blurs at the edges and it is worth conceding that rather than pretending to a clean line. Replacing a machine with a faster one is part replacement and part expansion. Regulatory spending that adds no capacity at all is neither in any satisfying sense. The split is a judgement, and a candidate presenting it as a measurement is overstating it.