Growth vs maintenance capex.

Separating growth capex from maintenance capex reveals true free cash flow. Maintenance capex = depreciation (replacing worn assets to keep status quo). Growth capex = total capex minus depreciation (expanding capacity). Only growth capex creates new value; maintenance is cost of running the existing business.

5M total capex, 3M depreciation. Maintenance capex = 3M (replacing what wore out). Growth capex = 2M (new capacity). Investors value growth capex positively (building future revenue) and maintenance negatively (ongoing cost). Reported capex doesn't distinguish - this split is essential for valuation.

Buffett's 'owner earnings' concept: true earnings = net income + depreciation - maintenance capex. If capex = depreciation, owner earnings = net income. If capex > depreciation, the extra is growth investment (reduce owner earnings for true maintenance-adjusted profitability). Many capital-intensive businesses show high earnings but high maintenance capex, making owner earnings much lower than net income.

Quick example

With total capex of 5,000,000 and depreciation of 3,000,000, the result is 2,000,000.00. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter Total Capex and Depreciation. The rate and the time horizon usually dominate — compounding means a small change in either reshapes the final figure more than a similar shift in contribution size. Test this by doubling one input at a time.

What's happening under the hood

Maintenance capex = min(depreciation, total capex). Growth capex = max(0, total - depreciation). The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

What to do with a low result

A disappointing result is information, not a judgement. Pick the single input that dragged the figure down most and focus the next quarter on that one factor. Breadth-first improvement rarely works; depth-first on the worst input usually does.

What this doesn't capture

The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.