CapEx (Capital Expenditures)

Definition

Money spent on assets that last years, not on day-to-day running costs.

Why It Matters

It is the cost SDE and add-backs quietly leave out. A seller who has deferred replacing an aging fleet shows earnings the business cannot sustain. So a buyer charges maintenance capex as a real annual expense and treats only genuine growth capex as optional spending.

In numbers: A landscaping company reporting $600k of SDE but averaging $90k a year to replace mowers and trucks is really producing closer to $510k once maintenance capex is charged. A lender that sizes debt on the higher figure leaves the buyer short the day a truck dies.