The term CapEx signifies the amount of money that an organization uses to buy assets or generate its own long-term investments. 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.
Capital expenditure, or CapEx, is the money that a company spends to acquire, maintain, or improve its long-term assets. These assets are typically fixed assets, such as buildings, land, equipment, or vehicles.
- Fixed Assests
- Assets which are not movable.
Capex vs Opex
CapEx is different from operating expenses, which are expensed immediately through the income statement. CapEx is capitalized and held on the balance sheet because it’s considered an investment in the company’s future operations.
- Importance
- CapEx is important for companies that want to grow and maintain their businesses. It can help with long-term financial sustainability by supporting growth initiatives and minimizing the financial risks.
- Examples
- Office buildings
- Land
- Equipment and machinery
- Computers
- Furniture
- Vehicles
- Acquisition of another company
- 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
