What Is a CapEx (Capital Expenditure)?

What Is a CapEx (Capital Expenditure)?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A CapEx, or Capital Expenditure, refers to the funds that a company utilizes directly to maintain or enhance its business operations, equipment, or structures. It is invested in the long-term productive assets of a company. This type of spending is capitalized rather than written off as an expense in the company’s financial statements. This means that its value is spread over the estimated life of the asset, giving a more accurate picture of a company’s profitability.

Related Questions

1. How is CapEx different from OpEx?

CapEx refers to business investments in fixed assets like property, plants, and equipment. They are capitalized over the life of the asset. OpEx, or Operating Expenditure, on the other hand, are expenses that a company incurs as part of its daily operations like salaries, rent, and utilities. They are fully deducted in the year they are incurred.

2. Why is CapEx important?

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CapEx is an important indicator of a company’s investment in its future growth and maintenance. A high CapEx might indicate that a company is actively investing in its future.

3. How is CapEx calculated?

CapEx is calculated by adding the increase in property, plant, and equipment (PPE) to the current period’s Depreciation and subtracting the prior period’s PPE. In simpler terms, CapEx = (PPE[n] + Depreciation[n]) – PPE[n-1]

4. What is depreciation in relation to CapEx?

Depreciation refers to the decrease in value of an asset over time due to factors like wear and tear. In terms of CapEx, the cost of a capitalized asset is spread out over the asset’s useful life year by year as depreciation.

5. Can CapEx be negative?

Yes, CapEx can be negative. This might occur if a company sells off more assets than it purchases in one period. Negative CapEx might indicate a lack of long-term investment in the company.