In both public and private markets, investors often trust eBitda and cash flow statistics to assess profitability and value companies. However, these measures can mask a wide gap between accounting income and free cash flow. That gap usually comes from two sources: shifts in working capital and cash flows of investments, with Capex often the largest engine in capital -intensive industries. Poorly performing projects can even look stronger even, while cash is being drained.
This blog emphasizes why ex-post monitoring of capitarian taming cases and how investors can detect whether Capex creates or destroys value in various industries.
It is important to note that Capex needs vary considerably per sector. Capital -intensive industries such as telecommunications and energy require large recurring investments. Others such as software or education are much less dependent on expenses with fixed asset. Although working capital management is usually followed closely, much less attention is paid to the cash flow conversion of the growth pex. In recent years, this supervision has become mainly relevant as higher interest rates increase the costs of financing large investment programs.
Why Capex monitoring matters
Growth Capex is a long -term capital allocation decision. The challenge for investors is that, once approved and implemented, companies rarely reveal or actually produce the promised returns.
The risk is clear: the reported income may not fully reflect the cash flow implications of expansion programs. Under -performing investments can look stronger the profitability than it is, while at the same time it reduces the available cash for dividends, returns or debt service.
The profit-cash flow gap is mainly pronounced in capital-intensive sectors such as telecom and energy, where large recurring investments are the norm. With higher interest rates that increase the financing costs, careful monitoring of Capex Cash Conversion has become even more critical.
Disclosure approaches
Here are a few examples of companies that break out Capex of the total income:
- Telecommunication: Spanish telecom giant Telefónica reports income before interest, taxes, depreciation, amortization and special losses (eBitdaal). This metric comprises built -up capital expenditures. Management noted in Q2 2025 Results: “It is important to consider capital expenditures with the exception of spectrum purchases with EBITdaal, to have a more complete measure of the performance of our telecommunication companies.” Because Telefónica integrates all Capex in this key performance indicator (KPI), management and investors can even identify more easily by geography and investors when roll -out does not generate expected cash flows.
- Industrial production: The manufacturer of the French transport system Alstom revealed an adapted net profit to free cash flow conversion rate but did not report any efficiency on Capital Employed (ROCE) or return on Capital Invested (ROCI) in its annual report of March 2025. On the other hand, the management of the management of the management of the Kasis OPASIS follows Opasis Opasis Opasis Opasis Opasis Business level monitors even if broader Capital return statistics are absent.
These examples show how disclosure practices differ between industries and why investors should adjust their approach, depending on the sector and reporting culture.
Investor red flags
Investors rarely see the internal capital budgeting models of management, but public disclosures often contain signals that are worth monitoring:
- Rising leverage against higher capital costs, in particular when companies rely on private debt funds with variable rates.
- Falling profitability of comparable activities. Lower EBITDA per store, business unit or product category can, for example, suggest after the disaster up period that new investments dilute the total profitability.
- Capex growth without persistent improvement in exchange for invested capital (ROIC).
These signals must always be assessed in combination with the management discussion and analysis (MD&A) to separate structural problems from temporary pressure.
How good disclosure looks like
Strong disclosure practices help investors evaluate the discipline of capital allocation. Examples are:
- Roic or Ebitda-Checkpoints report after the disaster-up period, distinction between comparable units and connected to a new Capex.
- The provision of Capex public making at segment level directly linked to the results of the cash flow.
- Communicating payback time for strategic projects.
- The demonstration of improved profitability in the business units where Capex was used, ideally with a breakdown of fixed assets by new versus comparable activities.
Conclusion
The shareholder value is not created by the volume of capital that is used, but by the ability of a company to transform those investments into sustainable cash flows. This principle applies in various industries, whether it is in telecom, energy, industry or asset-light sectors where Capex plays a smaller but still strategic role. For investors, the key is to look beyond income and check whether Capex is translated into real cash generation. Undisciplined Capex blows up balance sheets, but disciplined growth builds up resilience and economic return in the long term.
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All messages are the opinion of the author. As such, they may not be conceived as investment advice, nor do the opinions reflect the views of the CFA institute or the author of the author.
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