How volatile capital expenditures have been over five years. Consistent capex spending makes future free cash flow easier to forecast. Companies with predictable capex are easier to value using DCF models.
Formula
Description
Measures how volatile capital expenditures have been over five years using the coefficient of variation (standard deviation divided by mean). Consistent capex spending indicates predictable reinvestment needs and makes future free cash flow easier to forecast.
Interpretation
Below 0.3 is good, indicating stable and predictable capex. Above 0.5 suggests lumpy spending that creates volatile free cash flow. Companies with consistent capex are easier to value using DCF models because FCF projections are more reliable.
Related Risk Indicators
Whether gross margins are improving or declining over five years. A positive trend means the company is gaining pricing power or reducing costs. Negative trends in a mature business are a warning sign.
Whether bottom-line profitability is improving or declining over five years. A positive trend indicates the business is becoming more profitable. The most durable improvement comes from expanding gross margins rather than cost-cutting.
The lowest ROIC recorded over five years. A company with a high minimum ROIC (above 10%) maintains strong returns even in bad years, indicating a genuinely strong business with a durable competitive advantage.
Measures the accrual component of earnings relative to total assets. When cash flow exceeds reported earnings, the company has high-quality earnings. Large accruals relative to assets are a red flag for potential manipulation.
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