Abstract

This study empirically examines the long-term relationships between Capital Expenditures (CAPX) and Depreciation (DEPR) and Net Working Capital (NWC) to Sales. The CAPX to DEPR and NWC to Sales ratios are frequently used in capitalized earnings and discounted cash flow models. Previously, McConaughy and Bordi documented that CAPX exceeds DEPR expenses in the long-term. Using data from Capital IQ, this article expands on that finding by examining the CAPX to DEPR and NWC to Sales ratios across industries from 1997 to 2011. The long-term behavior of this data may aid in making long-term assumptions in business valuation models.