as volatileas capitalexpenditures, itmakesmore senseto
leave depreciation untouched.
Forfirms withalimitedhistory orfirmsthathavechanged
theirbusinessmixovertime,averagingovertimeeitherisnot
anoptionorwillyieldnumbersthatarenotindicativeoftrue
capitalexpenditureneeds.Forthesefirms,industryaverages
forcapitalexpendituresareanalternative.Sincethesizesof
firms canvary acrossan industry,theaveragesareusually
computed with capitalexpenditures as a percent ofa base
input—revenues and total assets arecommon choices. We
prefer to look at capital expenditures as a percent of
depreciationandaveragethisstatisticfortheindustry.Infact,
ifthereareenoughfirmsinthesample,wecouldlookatthe
averageforasubsetoffirmsthatareatthesamestageofthe
life cycle as the firm being analyzed.
ILLUSTRATION 3.7: Estimating Normalized Net Capital
Expenditures: Titan Cement
Titan Cement is a Greek cement company. Like most
manufacturing firms, its capital expenditures have been
volatile over time. Thefollowingtable summarizes capital
expendituresanddepreciationforTitaneachyearfrom 2000
to 2004, and computes the net capital expenditures as a
percent of the after-tax operating income.