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The Statement of Cash Flows (SCF) intentionally leaves out a critical use of cash: Maintenance Capital Expenditures (M-Capex). Some analysts want to “correct” cash flow analysis by deducting M-Capex from operating cash flow. This is an overreaction that overstates the deduction, which can lead to lost lending opportunities and even lost clients.

To understand the role of MCapex in cash flow, one must go back to why the SCF excluded it in the first place. The article in the October 2018 issue of The RMA Journal begins there, explaining that the SCF excluded MCapex because it is a “naturally recurring investment cash flow.” The article then reveals another cash flow missing from the SCF, the “naturally recurring financing cash flows” that offset MCapex. A must-read if your cash flow spreadsheets deduct all of MCapex from operating cash flow.