Hi all
I understand that for any CAPEX beyond the maintenance CAPEX (= Depreciation) is financed by debt and equity based on the debt ratio.
However, I do not understand how is the maintenance CAPEX ALONE financed? Only using the Free cash flow?
Hope the question is clear!
with Debt and Equity as well. This is a classic case of Accrual accounting.
Some expenses are considered operating where as some expenses such as replacing a certain portion of fixed assets ( obsolete or that break down) is treated as capital maintenance expenses that keeps the assets in working condition and gets you revenue in the long term. The argument is that if you think Depreciation to be the money you are getting back as the assets age, capital maintenance is what you are putting back into the project/ company to keep it going.