The Daily Technical #144: What is the difference between growth and maintenance capex?

Good afternoon. Welcome to the 144th edition of The Daily Technical.

Now, you’re here for one reason, so let’s dive in.

First time reading? Sign up here.

OVERVIEW OF YESTERDAY’S QUESTION
What does inventory turnover measure and how does it differ from days inventory held (DIH)?

The inventory turnover ratio is the number of times a company has sold and replaced its inventory balance throughout a specified period (i.e., the number of times inventory was "turned over").

Inventory Turnover = Cost of Goods Sold / (Average of Beginning and Ending Inventory)

In contrast, DIH is the average number of days it takes for a company to turn its inventory into revenue.

Common Mistakes

1. Equating inventory turnover with sales volume. Remember, inventory turnover focuses on how efficiently inventory is sold and replenished, not on actual sales figures. Make sure to differentiate between these terms to assess a company's operational performance accurately.

2. Simplifying DIH as merely days in inventory. Incorrectly understanding it as the entire timeframe to convert to revenue is a mistake. Remember that DIH specifically measures the days taken to sell inventory, helping evaluate operational efficiency tightly tied to sales strategies.

3. Forgetting industry context. Values for inventory turnover and DIH vary significantly across industries. Always compare these ratios against industry standards to provide insightful analysis rather than arbitrary numbers.

TL;DR

• Inventory Turnover: Measures how many times inventory is sold and replaced in a period. Use formula: Cost of Goods Sold / Average Inventory.

• Days Inventory Held (DIH): Indicates average days needed to convert inventory into sales.

• Key Difference: Turnover focuses on frequency; DIH focuses on duration.

• Insight: Both metrics explain a company's inventory management efficiency.

TODAY’S QUESTION
What is the difference between growth and maintenance capex?

Type your answer here. Within 60 seconds you’ll have custom feedback in your inbox.

THAT’S A WRAP
Before You Go: Here’s How We Can Help!

Jobs: we’re tracking all open jobs for the classes of 2025 - 2028. Our list is updated daily. Check them out here

Mentorship: if you’re looking for 1:1 career mentorship, click here to book a free discovery call.

See you tomorrow,

Mike Lukasevicz
Founder @ HirePrep