Capital Expenditures

RECENT NEWS
OilVoice  Jun 28  Comment 
The US and Russia will dominate global capital expenditure (capex) on planned major, trunk crude oi ...
MarketWatch  Jun 25  Comment 
Are U.S. stock-market investors pinning their hopes on a factor that may ultimately have a limited impact on price moves?
The Hindu Business Line  Jun 18  Comment 
Passenger vehicle makers to account for 70 per cent of the capex
The Economic Times  Jun 14  Comment 
The telco in an analyst presentation said it has plans to entice customers to upgrade to 4G.
The Economic Times  Jun 13  Comment 
The telco in an analyst presentation said that to achieve its target, it has plans to entice customers to upgrade to 4G -with their device partnerships and special offers.
Reuters  Jun 11  Comment 
Japan's core machinery orders in April jumped the most since the start of 2016, reversing the prior month's decline and raising some hopes for durable growth in capital expenditure seen as crucial for a recovery in the economy after a contraction...
The Economic Times  Jun 5  Comment 
Tata Motors acquired JLR a decade ago. Since then, its revenue has grown five times to £25.78 billion, profits have swelled to £1.1 billion and volumes have more than tripled to 6,21,000 units.
The Economic Times  May 25  Comment 
With heavy capex plans as well as a challenging gas field of GSPC, the company faces risk of a rating downgrade if it's forced to borrow more to subsidise motorists.
SeekingAlpha  May 25  Comment 
OilVoice  Apr 9  Comment 
An average capital expenditure (capex) of $8.4bn per year will be spent on 249 oil and gas fields i ...




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A Capital Expenditure is money a company spends to acquire or upgrade a business asset.

Common examples of a capital expenditure include the purchase of a new building, or the cost of significant upgrades to the equipment in an existing facility. In accounting, a capital expenditure is "capitalized", which means the cost or value of the underlying asset is adjusted for tax purposes and will now include the capital spent to upgrade it. A capital expenditure is considered to be deductible for tax purposes, because it represents an improvement to the business. But it cannot be deducted all at once, in the year in which the money was spent, if the property acquired or upgraded has a useful life longer than the taxable year. In this situation the capital expenditure is subject to Depreciation and Amortization and is deducted over the expected life of the item, rather than all at once, which is what happens with repair or maintenance expenditures.

Thus there is an important distinction between expenses that are "capitalized" by a company and those that are "expensed." A cost for repair or maintenance will appear on a company's Financial statement one time, as a cost incurred that month. But a capital expenditure will be amortized over multiple years, as the value of the underlying asset declines over time, on a company's balance sheet.

Capital expenditure is synonymous with 'capital spending' or 'capital expense' and is also know as CAPEX. The counterpoint of capital expenditures is Operating Expense or OPEX. This is the on-going cost for running a product, business, or system, as opposed to CAPEX which is the cost of developing or providing the parts necessary to make the product or system. For example, the purchase of a laptop computer is a capital expenditure, but the cost of the broadband internet subscription that a worker needs in using the computer is an operating expense.

Applications of CAPEX

Capex is commonly found on the Cash Flow Statement as "Investment in Plant Property and Equipment" or something similar in the Investing subsection. Publicly traded companies will often list their capital expenditures for the year in annual reports, which allows stockholders to see how the company is using their money and whether it is investing in its long-term future. Most companies have yearly capital expenditures as they consistently upgrade facilities and equipment.

Examples of CAPEX vs OPEX

  1. A company buys a copy machine (CAPEX); and buys toner and paper to operate it (OPEX).
  2. Installing a new bathroom in company offices (CAPEX); fixing the broken toilet so workers can use it (OPEX).
  3. Large media agency acquires a smaller media company in a cash-and-stock deal (CAPEX); pays the cost to move existing employees into the consolidated company's new offices (OPEX).
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