Table of Contents
What is Capital Expenditure?
Capital Expenditure (CapEx) is the amount of money that a business spends on buying and maintaining any machines, tools, or patents that help in running its operations.
How Does Capital Expenditure Work?
- CapEx is calculated by adding all changes to capital assets and then adding the depreciation to that total amount.
- CapEx is important to stakeholders of a business because it gives valuable insight into how much money is being spent on the future functioning of the business.
- The “right” amount of money being spent as Capital Expenditures varies across industries.
- Capital-intensive businesses like mining and manufacturing businesses might spend a lot more on CapEx than IT or e-commerce businesses.
- No business can completely avoid spending this money.
Capital Expenditure Formula
Capital Expenditure = Change in Property, Plant and Equipment + Current Depreciation
Read more: What is Depreciation?
The Bottom Line
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What are examples of capital expenditure?
Capital expenditure includes money spent on the purchase or maintenance of capital assets. Some examples are: buying land, repairing machines, etc.
What is capital expenditure and what is operating expenditure?
Capital expenditures include money spent on assets that will last for longer than one accounting year. Operating expenditure is money spent on assets that will only serve the business for one accounting year.
Is capital expenditure an expense?
Capital expenditure is not considered an expense to the business; it is considered an investment since it is towards the future functioning of the business.