Module II· DCF — Mechanics & FCFAdvanced

Question

What are 'hidden capex' items that are often forgotten in a DCF?

Answer

Classic blind spots:

Capitalized R&D / software development (it goes onto the balance sheet instead of through the P&L) — often under IFRS, partly under US GAAP. These must sit as capex in the DCF.
Bolt-on M&A (in investing cash flows, but capex-like, because it 'buys' growth).
Capitalized interest on large plant construction.
Capitalized advertising/marketing spend (historically at some e-commerce companies).
Operating-lease capex in pre-IFRS-16 comparison data. Result: the DCF overstates FCF, because 'real' capex is ignored.

Deep diveShow more details

Pitch tip

In an interview: 'I would treat capitalized R&D and bolt-on M&A as capex, otherwise the model overstates cash generation.'

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