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Measuring Growth and Maintenance Investments
- Organisms allocate energy between growth and maintenance and repair. They stop growing when maintenance requires all of the energy. Substitute capital for energy and companies appear to follow a similar trajectory.
- This is important because you can anticipate a company’s growth only if you understand how much capital it spends on growth versus maintenance.
- Estimating maintenance spending offers insight into how fast a company has to run just to stay in place.
- Most executives and investors likely underestimate maintenance spending. Steps toward better understanding include a proper assessment of maintenance capital expenditures and a separation of selling, general, and administrative expenses into investment and maintenance components.
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