Maintenance Capex

Intermediate

Maintenance capex is the capital spending a company needs to keep its existing assets and operations running at their current level, such as replacing worn-out equipment.

Capital expenditure, or capex, can be split into two types. Maintenance capex keeps the business going as it is. Growth capex expands capacity or adds new capabilities.

Examples of maintenance capex include replacing old vehicles, repairing or upgrading machinery to keep it working, refreshing store fittings and renewing computer systems that have reached the end of their life.

For example, a delivery company with a fleet of 500 vans, each lasting about five years, might need to replace around 100 vans a year just to keep its fleet the same size. That spending is maintenance capex.

Companies rarely report maintenance and growth capex separately, so analysts often estimate maintenance capex, sometimes using depreciation as a rough guide, since depreciation reflects the wearing out of existing assets.

The distinction matters for valuation. Maintenance capex is a necessary, recurring cost of staying in business, so it reduces the cash truly available to owners. Some analysts calculate free cash flow by deducting only maintenance capex, to see how much cash the business would generate if it stopped growing.

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