Does a high ratio mean the spending is wasteful?

It means the spending is large relative to the existing base. Whether it is wasteful depends on what the assets earn, which is the letter’s question and not the ratio’s.

Capex versus depreciation

Depreciation is the charge that spreads an asset’s cost over its useful life; when capital expenditures run well above depreciation, the asset base is growing faster than it is being written off.

The ratio of capex to depreciation is the simplest reading of a build-out’s stage. Near one, a company is replacing what wears out. At two or three, it is doubling or tripling the pace at which assets enter service, and depreciation will rise for years afterwards as those assets are charged to the income statement.

That lag is the reason operating margins can look strong during a build-out and come under pressure after it: the cash was spent earlier, the accounting cost arrives later.

How this site measures it

The company pages state capex as a multiple of the quarter’s depreciation and amortization where the filing reports the latter. Amortization of intangibles is included in the denominator because most filers report the two together.

Questions this page answers

Does a high ratio mean the spending is wasteful?: It means the spending is large relative to the existing base. Whether it is wasteful depends on what the assets earn, which is the letter’s question and not the ratio’s.

Where it is used

Every company page states it, for example Microsoft, Alphabet, Amazon, Meta, Oracle, and the companies page sorts all twenty-one. It decides the questions spending growth.