Are capex and upfront investments the same?
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Are capex and upfront investments the same?
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It depends on the context.
You may be asked to calculate the ROI or payback period on a given capital expenditure (e.g., Client is spending $100 in CapEx on a new machine that will allow for $10 in savings every year); in this case you should think of the capital expenditure as the upfront investment cost.
Alternatively, your client may be acquiring a company for $100 that generates $10 in EBITDA and requires $5 in capital expenditures (sometimes referred to as "maintenance CapEx" but not necessarily) every year; in this case you'll need to subtract the CapEx ($5) from the EBITDA ($10) in order to get to the free cash flow that the $100 company produces.
Hope this makes sense!
When in doubt, I would just explicitly clarfiy with your interviewer (1) what is an upfront, one-time cost, (2) what is an ongoing variable cost, and (3) what is an ongoing fixed cost. In this way you can avoid any confusion about what's meant by CapEx in the context of the case.
Good luck with your interviews!
Hi there,
Not necessarily.
Therefore, you could have Capex which is not an Upfront cost.
An Upfront cost is made most of the time by Capex (Capital expenditure), but could also occasionally include Opex (Operating expenditure) – for example an upfront legal fee.
“Upfront investment cost” should mean just Capex in the contest of a case (Opex should not be considered an investment), but I would clarify it with the interviewer to be sure.
Best,
Francesco
If you get these terms in an interview - best to clarify and resolve ambiguity.
They are not. There is important nuance here.
Capex is the fixed cost (annual cost) to buy, maintain, and mprove fixed assets. They relate directly to a P&L.
An investment cost is the upfront cost (i.e. "buy") of an investment. It relates to an ROI.
So, investment costs are just one type of capex!
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No,
Hi, they are different and I agree with the accurate definitions of other coaches. I simply would like to add these are dependent on the context, when you are assessing an investment in a case you usually have to consider only upfront cost vs recurring profit. In all the other cases you only have capex
Best,
Antonello