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*Acquisitions in Cap Ex

The basic rule is both simple and logical. If you want to count the growth from acquisitions in your top line earnings, you have to consider the acquisitions, whether they be paid for with cash or stock, as part of your cap ex. If you do not do this, you will be giving companies that grow through acquisitions the equivalent of a free lunch - growth without cost. The argument that stock based acquisitions do not affect cashflows is an absurd one, since all you are doing is skipping a step. If you had issued that same stock to the market and used the cash to fund the acquisitions, it would have been a cash acquisition.

If you are willing to ignore the growth from acquisitions, you can ignore acquisitions in your cap ex, but your resulting value can be different. To the extent that you systematically underpay or overpay on acquisitions, you will under or over estimate value by ignoring them. Only with fair value acquisitions will ignoring them give you the same value.