We penalise companies with high and rising capex to sales relative to their industry peers as it suggests a deteriorating financial position. Capex for our sample of 16,000 companies came in at a median average of 3.7% of sales between 2010 and 2015; however, there is significant variance by industry. Capital intensive industries, such as electric utility and oil & gas, generally report higher levels of capex compared to asset light industries, such as IT services, as Figure 91 shows.
Our accounting screen is set to trigger a red flag when capex to sales is in the highest 80th percentile relative to GICS industry peers (i.e. it is very high), and/or when there is an abnormally large increase relative to the normal rate of change amongst industry peers over one and three years. This latter red flag is triggered when the increase in capex to sales is in the 80th percentile relative to the change experienced by industry peers between 2010 and 2015.