How to Analyse CapEx: Maintenance vs Expansion (And Why It Matters for Cash Flow and Dividends)

How to Analyse CapEx Like an Analyst — A Practical Guide for Singapore Investors

A step-by-step framework to separate maintenance vs expansion CapEx, read cash flow quality correctly, and assess dividend sustainability with confidence.

Published: 15 November 2025 | Category: Investor Education / Earnings Analysis

Key Takeaways (If You Only Have 30 Seconds)

• CapEx is cash spent on long-term assets. It hits cash flow immediately, even if it doesn’t show up as an expense on the income statement.
• The big idea: not all CapEx is the same — maintenance CapEx keeps the business alive; expansion CapEx grows it.
• For “real” free cash flow, analysts focus on: FCF = Operating Cash Flow – Maintenance CapEx.
• Dividend sustainability depends on cash flow after maintenance CapEx — not on accounting profit.
• Quick estimator: in steady businesses, maintenance CapEx ≈ depreciation. Big gaps can be a signal (growth, underinvestment, or misallocation).
• Red flags include: borrowing to fund maintenance CapEx, CapEx far above depreciation without growth, and persistent underinvestment.
• This framework improves SGX earnings analysis by clarifying cash flow vs profit and capital allocation quality.

Contents

1. Big Picture
2. Results Summary
3. Income Statement
4. Margins & Profitability
5. Balance Sheet
6. Cash Flow
7. Dividends
8. Management Commentary
9. A Simple Analyst Framework
10. Common Red Flags
11. My Overall Take
12. FAQ

1. Big Picture

CapEx — capital expenditure — is one of the most important yet misunderstood parts of fundamental analysis. It decides whether a business is generating real cash or just reporting accounting profit.

A company’s CapEx choices influence:

• whether cash flow is real
• whether dividends are sustainable
• whether the business can grow
• how much debt the company needs
• whether acquisitions become “necessary”
• long-term competitiveness and profitability

Here’s the key insight most investors miss: not all CapEx is the same. Some CapEx keeps the business alive. Some CapEx grows the business. And some CapEx destroys shareholder value.

This guide gives you a clear, analyst-style way to separate maintenance CapEx vs expansion CapEx — and interpret cash flow vs profit correctly.

2. Results Summary

CapEx is cash spent on long-term assets — factories, machines, vehicles, IT systems, infrastructure. It usually does not appear as an expense on the income statement immediately. Instead, it is capitalised and depreciated over time.

That accounting treatment is exactly why CapEx matters: you can report profit while still draining cash if CapEx needs are heavy.

The two CapEx buckets

• Maintenance CapEx: keeps the current business running at today’s level (“keeping the lights on”).
• Expansion CapEx: increases future capacity, productivity, or reach (“scaling the business”).

This distinction is what makes CapEx analysis one of the best tools for SGX earnings analysis and dividend investing.

3. Income Statement

The income statement can look clean even when a company is making heavy capital commitments. CapEx doesn’t show up as an expense straight away — depreciation is spread across years. This is why investors must connect the income statement to CapEx and cash flow.

What to check quickly

• Is revenue growing alongside investment, or is growth absent?
• Are margins improving (suggesting productivity gains), or falling (suggesting cost pressure)?
• Is depreciation rising steadily (asset base growing), or suddenly spiking (new assets commissioned)?

Explaining it like you’re 11

Imagine you buy a new bicycle using a big chunk of your savings. Your “monthly spending” may look small if you pretend the bicycle cost is spread over many months. But your cash is already gone today. CapEx works the same way.

Analyst Insight

• CapEx analysis prevents “false comfort” from accounting profit.
• In income statement explained terms: depreciation is an accounting allocation; CapEx is a cash decision.
• If profits rise but CapEx also rises without clear returns, investigate capital allocation quality.

4. Margins & Profitability

CapEx should ideally improve long-term economics: productivity, unit costs, reliability, capacity, or customer reach. If a company spends heavily but margins and returns do not improve, that is a warning sign.

How CapEx links to profitability

• Maintenance CapEx protects existing margins by preventing asset deterioration.
• Expansion CapEx should support future revenue and profit growth (if returns are attractive).
• Value is destroyed when expansion CapEx is poorly allocated (spending without earning).

Explaining it like you’re 11

If you buy a better lemonade machine, you expect to sell more cups or make each cup cheaper to produce. If you keep buying machines but still sell the same number of cups, something is wrong.

Analyst Insight

• Healthy expansion CapEx usually comes with a credible growth narrative and measurable operating improvements.
• When CapEx rises but revenue stays flat, ask whether it is truly “growth” or just expensive upkeep.
• Persistent margin decline alongside heavy investment can indicate poor execution or weak industry structure.

5. Balance Sheet

CapEx increases the asset base on the balance sheet. You will usually see this through higher Property, Plant and Equipment (PPE) or other long-term asset categories.

What to watch

• PPE growth: is it aligned to strategy (capacity, productivity, upgrades), or unexplained?
• Depreciation trend: rising depreciation usually reflects a larger asset base.
• Debt trend: is the company borrowing heavily to fund CapEx?

The risk case is simple: if the company needs heavy ongoing spending just to maintain operations, the balance sheet can become more leveraged over time.

Explaining it like you’re 11

The balance sheet is like your list of “things you own” (bicycle, laptop) and “money you owe”. Buying more expensive things using loans can make you look bigger — but not necessarily safer.

Analyst Insight

• Watch for businesses that must keep spending heavily to “stand still”. That often weakens long-term free cash flow.
• CapEx funded by operating cash flow is healthier than CapEx funded by persistent borrowing.
• In downturns, high fixed CapEx obligations plus high debt can become a dangerous combination.

6. Cash Flow

This is the heart of CapEx analysis. CapEx hits cash flow directly — and it is one of the main reasons investors misunderstand “free cash flow”.

The key distinction: “true” free cash flow

Analysts often think in terms of: FCF = Operating Cash Flow – Maintenance CapEx

The reason is practical: maintenance CapEx is “non-negotiable” spending required to keep the current business functioning. Expansion CapEx can be optional or cyclical (and should earn good returns).

Confusing the two can lead to huge mistakes:

• A business with heavy expansion CapEx may show low cash flow temporarily, but still be healthy.
• A business with heavy maintenance CapEx may report profit, but effectively “burn cash” just to survive.

Explaining it like you’re 11

Maintenance CapEx is like repairing your bicycle so it still works. Expansion CapEx is like buying a second bicycle so you can deliver more orders. If you can’t afford repairs, you can’t even keep going.

Analyst Insight

• This is a core skill in how to read quarterly earnings: always connect profit to CapEx and operating cash flow.
• “Strong profit, weak cash flow” is often explained by working capital and CapEx.
• CapEx quality analysis is fundamentally capital allocation analysis — where management proves discipline (or not).

7. Dividends

Singapore investors love dividends. But dividends are only truly safe when they are funded by cash flow that remains after maintaining the asset base.

The dividend rule that protects you from traps

Ideally, dividends should be funded from: Operating Cash Flow – Maintenance CapEx

Not from:

• accounting profit alone
• borrowing
• asset sales
• rights issues

Companies that borrow to pay dividends often face a future cut. This is why CapEx analysis is essential to dividend sustainability.

Explaining it like you’re 11

Dividends are like sharing your pocket money. If you still need money to fix your school bag and buy books (maintenance CapEx), you should not give away all your allowance first.

Analyst Insight

• Dividend investors should treat maintenance CapEx as “mandatory”. If it is rising, the margin of safety shrinks.
• Expansion CapEx can reduce dividends temporarily — but may be healthy if returns are strong.
• In SGX earnings analysis, always ask: is the dividend supported by recurring cash flow after upkeep?

8. Management Commentary

Companies rarely disclose “maintenance vs expansion CapEx” as a clean number. So the best analysts rely on patterns and management disclosures.

Common language that signals CapEx purpose

• Maintenance-style: “replacement of equipment”, “repairs”, “renewal”, “compliance”, “safety upgrades”, “IT refresh”.
• Expansion-style: “new facility”, “capacity expansion”, “automation”, “productivity improvement”, “new stores”, “new lines”.
• Ambiguous: “strategic investments” without specifics (requires extra caution).

Good management teams explain CapEx clearly and connect it to measurable outcomes. Weak teams stay vague.

9. A Simple Analyst Framework

Below is a practical, repeatable CapEx framework you can apply to almost any SGX company. It combines simple ratios with common-sense reading of disclosures.

Step-by-step CapEx analysis

1. Define the CapEx cycle: is the business steady-state or cyclical in investment (e.g., shipping, telco, manufacturing)?
2. Compare CapEx to depreciation: in steady businesses, maintenance CapEx is often roughly near depreciation.
3. Check the direction: CapEx > depreciation can signal expansion; CapEx < depreciation can signal underinvestment.
4. Read the annual report notes: look for specific categories (“replacement”, “new facility”, “automation”, etc.).
5. Track CapEx-to-sales: CapEx ÷ revenue. Spikes often reflect expansion cycles; persistent high levels may reflect capital intensity.
6. Link to outcomes: do revenue, margins, and productivity improve after investment?
7. Test dividend funding: is dividend supported by operating cash flow after maintenance CapEx?

This is an essential skill for anyone serious about how to read quarterly earnings and assessing business quality.

10. Common Red Flags

CapEx red flags usually fall into two buckets: underinvestment (future breakdown) or misallocation (spending without returns). The most dangerous cases involve debt.

• CapEx far below depreciation every year: persistent underinvestment can create future reliability issues.
• CapEx far above depreciation without clear growth: possible poor capital allocation or weak returns.
• Expansion CapEx rising but revenue flat: investments not generating commercial outcomes.
• Borrowing to fund maintenance CapEx: structural weakness; risk rises sharply in downturns.
• Maintenance CapEx rising faster than revenue: business becoming more capital-intensive and harder to sustain.
• Frequent acquisitions used to “manufacture growth”: can be a sign organic growth is weak (requires deeper review).

These signals do not automatically mean “avoid”. They mean: slow down, read the disclosures carefully, and validate whether cash generation is truly durable.

11. My Overall Take as an Accounting-Trained Investor

A simple explanation for an 11-year-old

CapEx is money a company spends on big things it will use for many years. Some spending is just to fix old things so the business doesn’t break. Other spending is to grow bigger. You want companies that can fix what they need and still have cash left over.

• What matters most: whether the business generates cash flow after maintenance needs, and whether expansion spending earns real returns.
• What to ignore: profit headlines that are not backed by sustainable cash generation and disciplined reinvestment.
• How this improves decision-making: you avoid dividend traps, judge capital allocation quality, and interpret cash flow vs profit correctly.
• Why consistency beats prediction: instead of guessing cycles, focus on businesses with disciplined reinvestment and resilient cash conversion over time.

CapEx analysis is one of the cleanest ways to separate true compounders from fragile businesses. If you add it to your regular process, your SGX investing decisions become calmer and more evidence-based.

12. FAQ

Is profit or cash flow more important?
Over time, cash flow is the harder truth. Profit can look good because CapEx is spread out as depreciation. This is why analysts compare profit to CapEx and focus on cash flow vs profit.

How do analysts spot red flags early?
By comparing CapEx to depreciation, checking whether investment is producing growth, and watching for borrowing used to fund maintenance needs. Patterns matter more than one quarter.

Can dividends be misleading?
Yes. Dividends based on accounting profit can be risky if cash is being absorbed by maintenance CapEx. Sustainable dividends usually require cash flow after upkeep — a core part of dividend sustainability.

How often should I review CapEx?
Every earnings season, but especially in the annual report where CapEx disclosures are clearer. Track multi-year trends and relate them to revenue and margin outcomes.

Is this framework suitable for REITs?
The principles still apply, but the labels differ. For REITs, ongoing asset works (e.g., enhancement initiatives) can reduce distributable income, while acquisitions behave like expansion. Always connect asset spending to cash returns and payout capacity.

About the Author
HenryT is a Fellow Chartered Accountant (FCA) based in Singapore and the writer behind The Accounting Investor. He combines professional accounting training, corporate finance experience and personal dividend investing to help everyday investors read financial statements with confidence.

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Disclaimer

This article is for education and general information only. It does not constitute investment, legal, tax or any other form of professional advice, and it is not a recommendation to buy, sell or hold any securities mentioned.

My sole intent is to help readers learn how to read financial statements and think more clearly about businesses. Please do your own research or consult a licensed financial adviser before making any investment decisions. I may or may not hold positions in the securities discussed at the time of writing and am under no obligation to update this article.