What typically occurs to the ratio of capital expenditures (capex) to depreciation as companies mature?

As companies mature, the dynamics of their capital expenditures (capex) relative to depreciation tend to shift. Typically, in the early stages of a company’s life, substantial investments in physical assets and infrastructure lead to high capex levels. However, as the company grows and stabilizes, the need for new capital investments often decreases. This results in capex becoming more aligned with the depreciation of existing assets, leading to a ratio that decreases and commonly approaches 1.

At a mature stage, businesses generally focus on maintaining their existing assets rather than constantly expanding or acquiring new ones. The depreciation reflects the declining value of existing assets over time, and if a mature company is effectively managing its investments, the capex will align more closely with this depreciation. Thus, a mature company tends to replace assets and invest primarily to maintain operational efficiency, rather than to grow aggressively, confirming the trend toward a ratio near 1.

This rationale explains the behavior of mature companies in relation to capex and depreciation. The other options suggest scenarios that do not align with the typical trends observed in mature companies. For instance, an increasing ratio beyond 1 would imply a continued, aggressive capital investment which is generally not characteristic of mature businesses focused on stability and asset maintenance.