CapEx Outpacing Revenue and Peers
Capital expenditures rise sharply as a percentage of sales while peer investments are declining, frequently indicating disguised operating costs.
RED FLAG PROFILE & FORMULA
- Indicator: CapEx Outpacing Revenue and Peers
- Screening Formula:
CapEx / Revenue > 1.5x Peer Median - Targeted Schemes: capitalising operating expenses, deferred cost abuse.
- False Positive Context: Greenfield datacenter build-outs, semiconductor fabrication plant construction, or nationwide 5G/fiber network build phases.
MATHEMATICAL FORMULA & EXTRACTION METHOD
10-K COMPUTATION
Mathematical Formula
CapEx / Revenue > 1.5x Peer Median
How to Compute from Form 10-K
Extract Capital Expenditures from Investing Activities section of Cash Flow Statement. Divide by Total Revenue and benchmark against industry peers.
False-Positive Boundaries & Legitimate Explanations
Greenfield datacenter build-outs, semiconductor fabrication plant construction, or nationwide 5G/fiber network build phases.
FRAUD SCHEMES DETECTED BY THIS INDICATOR
SCHEME CORRELATIONS CAPITALISING OPERATING EXPENSES Click to view journal entries and debits/credits for this scheme. DEFERRED COST ABUSE Click to view journal entries and debits/credits for this scheme.
CASES WHERE THIS RED FLAG APPEARED BEFORE DISCOVERY
1 HISTORICAL CASES| Case Title | Jurisdiction | Primary Scheme | Action Date |
|---|---|---|---|
| WorldCom: $11B Operating Expense Capitalization Fraud | US | capitalising operating expenses | 2002-06-26 |