Ann: Media release, page-40

Not sure why, but I missed this particular post of yours, @MarsC.

Your reference to the distinction between growth and maintenance capex is something that is very dear to my heart, but I very rarely reference it because my experience is that no one ever thinks about it, let alone goes to the effort of trying to actually quantify growth capex versus maintenance capex.

So when I do come across someone that does pay it some heed, my ears prick up, my pupils dilate, me heart quickens, and I sit up in my chair.

Because whenever I buy shares in a business, I do exactly that: I buy a share of the business.

And because I become a part owner of the business (as opposed to an owner of a squiggle on a share price chart that hopefully goes up, and not down), I am acutely focused on how much financial return I am going to receive from owning the business.

And to know how much financial return I am going to receive, I need to know how much capital my business generates, and how much capital it consumes.

Not just that, but what the nature is of the sources of the capital being generated by the business, and of the capital that is consumed by the business, where and how exactly that occurs.

It never ceases to amaze me how many investors - not just the HotCopper punters club variety but even highly experienced and offensively remunerated stockbroking analysts - spend so much effort in debating and discussing a company reporting Net Profit After Tax of X millions of dollars, and whether or not the company "missed" or "beat" consensus expectations by a few percentage points here or there, without so much as a second thought about how that NPAT was generated... specifically how much capital was consumed to do it, and how exactly that capital was utilised.

Anyone running his own successful business would be acutely aware of where and on what their business was spending money in order to drive the revenues and profits of that business, and yet when it comes to companies listed on the stock market, it somehow doesn't warrant any consideration whatsoever.

I've never understood why this was the case; maybe public companies are perceived by investors - because those companies are listed - to have access to vast pools of free capital, so it doesn't matter how much capital they need in order to generate a given level of profitability.

My favourite example of this oversight exists in the engineering construction sector (companies like DOW and LEI) where analysts keep telling me over the years that these stocks are BUYs because they are trading on 12x P/E, but when I ask them how much confidence they have in their "E" forecasts, and also how much valuable shareholder capital needs to be set aside in order to generate that (pretty dubious) level of "E", I am invariably met with a stunned silence.

Anyway, here endeth the sanctimonious sermonising.