Capex stands for Capital Expenditure. It refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, equipment, and other long-term assets.
Capital expenditures are investments made by a company to acquire or improve fixed assets that have a useful life of more than one year. These expenditures are crucial for the growth, maintenance, and operations of a business.
Some examples of capital expenditures include:
- Purchasing new machinery, equipment, or vehicles for production or operations.
- Constructing a new building or facility.
- Major renovations or improvements to existing buildings or facilities.
- Purchasing land or real estate.
- Acquiring computer hardware and software systems.
- Investing in research and development activities.
Capital expenditures are different from operating expenses, which are the day-to-day costs incurred in running a business, such as salaries, utilities, and office supplies.
Capex is typically recorded as an asset on a company’s balance sheet and is subject to depreciation or amortization over the asset’s useful life. This means that the cost of the asset is gradually written off over time, rather than being recognized as an expense in the year it was acquired.
Companies often carefully plan and budget for capital expenditures, as they can have a significant impact on cash flow and financial performance. Capex is considered an investment that is expected to generate future economic benefits for the company.
