7-6: the less capex fallacy

capex

money company spends to purchase, replace, or improve long term assets

FCF

how much cash remains after operating activites and capital expenditures.

Operating cash flow - capex

less capex fallacy

The mistaken assumption that lower capex are always better because they produce higher FCF. While this may be true, context depends a lot. If a company invests in growth like buying more airline crafts thus increasing CAPEX, this doesn’t mean the lower FCF is bad because in the long term is a good investment and will produce higher FCF.

can companies manipulate financial statements?

yes, companies can change how they manage expenses, depreciation, and capex. however there are accounting rules.

what is wrong with valuation models that focuses heavily on current fcf?

They are ignoring the bigger picture. they ignore large productive investments and simply rewarding lower capex

secured operating lease

lease, business pays to use assets, leasing company retains ownership and has right to recover asset

secured financial lease

lease that business finances use of an asset under terms that resemble a purchase, lessor retains ownership

secured operating loans

loans used to finance business operating activities backed by collateral

secured financial loans

loan used to finance purchase or financial needs, backed by collateral