Capital expenditure (capex) should be backed by an investment case and underlying financial model in order to validate its commerciality
If you are looking to make a capex investment for your business, we can appraise the value of that investment, prepare a business case and build a financial model, giving you confidence in the potential return on your investment.
Capital expenditure (capex) is used to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment.
Capex can be categorised as either 'maintenance' or 'growth' in nature. Simply put, maintenance capex enables existing operations to continue (such as replacements and repairs) whilst growth capex is what enables the business to expand (such as new developments or renovations).
Given the relative costs and risks associated with such investments, particularly growth capex, it's important that the investment is properly assessed for its commerciality.
The end results often involves calculating an internal rate of return, a net present value, and a payback period for the cash flows.
We recently helped an educational institution that wanted to start a new branch for c. $35m.
We helped our client to quantify the branch's investment value, and we prepared for them a robust business case and financial model. The project was approved by senior management for development and was commenced based on our underlying work.