CAPEX Cycle Analysis Prompt Template

Here's a template for analyzing CAPEX cycles and their relationship with operating performance and market valuation for any company:

Data Extraction and Preparation Questions

1. What is the historical CAPEX trend for [COMPANY] over the past [X] years?
2. How has the CAPEX to revenue ratio evolved over time?
3. What is the relationship between CAPEX cycles and operating margins?
4. How has the market valued the company during different CAPEX intensity periods?
5. Can you identify distinct CAPEX cycles based on CAPEX intensity relative to revenue?

Analytical Framework

1. CAPEX Cycle Identification:

   • Define CAPEX intensity thresholds (e.g., Very High >40%, High 25-40%, Elevated 15-25%, Moderate 10-15%, Low <10% of revenue)
   • Track transitions between different CAPEX intensity levels
   • Measure duration of each cycle

2. Operating Performance Correlation:

   • Analyze relationship between CAPEX cycles and subsequent revenue growth
   • Track operating margin evolution across CAPEX cycles
   • Examine net margin trends relative to CAPEX intensity

3. Market Valuation Assessment:

   • Track market capitalization changes during and after CAPEX cycles
   • Evaluate P/E ratio changes in relation to CAPEX intensity
   • Compare EV/EBITDA multiples across different CAPEX phases

4. Return on Invested Capital (ROIC) Evaluation:

   • Calculate ROIC trends following major CAPEX cycles
   • Compare incremental ROIC to historical baseline
   • Assess CAPEX efficiency across different investment cycles

5. Industry Context:

   • Compare company CAPEX intensity to industry averages
   • Evaluate market share shifts following major investment cycles
   • Identify technology or capacity investments that changed competitive positioning

Visualization Requests

1. Create a time series showing CAPEX to revenue ratio with color-coding for different cycle intensities
2. Plot CAPEX amounts alongside revenue growth over time
3. Create a combined chart showing operating margin vs. CAPEX intensity
4. Visualize market capitalization and P/E ratio trends relative to CAPEX cycles
5. Create a summary table showing distinct CAPEX cycles with duration and subsequent performance metrics

Key Metrics to Track

• Absolute CAPEX values (quarterly and TTM)
• CAPEX to revenue ratio
• Revenue growth rates (year-over-year)
• Operating margin
• Net margin
• ROIC (Return on Invested Capital)
• Market capitalization
• P/E ratio
• EV/EBITDA multiple

Strategic Interpretation Questions

1. How effective have [COMPANY]'s capital allocation decisions been over time?
2. Is there a discernible pattern between CAPEX intensity and subsequent profitability?
3. How has the market typically reacted to [COMPANY]'s investment cycles?
4. What appears to be the company's current position in the CAPEX cycle?
5. Based on historical patterns, what might we expect from the current CAPEX trajectory?
6. How does the company's CAPEX efficiency compare to industry benchmarks?
7. Are there notable differences in CAPEX effectiveness between different management eras?

This template can be adapted for any company where you have access to historical financial data, particularly quarterly or annual information on capital expenditures, revenue, profits, and market valuation metrics.