Rather than capital expenditure, the term CapEx signifies the amount of money that an organization uses to buy assets or generate its own long-term investments. For all tangible long-term assets, purchasing buildings, vehicles, capital equipment, machinery, land, etc. are the investments that it makes. Besides that, the organization purchases intangible long-term assets such as patents, trademarks, and licenses. CapEx is typically an investment, either directly or indirectly, in safety, efficiency, or competitiveness over the long term for any company. Unlike operating expenses (Opex), it is associated with capitalizing fixed or long-term assets.
- How it’s calculated
- The formula for calculating CapEx is to subtract the beginning PP&E balance from the ending PP&E balance, and then add depreciation.
- How it appears on the balance sheet
- CapEx flows from the cash flow statement to the balance sheet. Once capitalized, the value of the asset is slowly reduced over time through depreciation expense
