Capital Expenditures

RECENT NEWS
The Economic Times  Jul 28  Comment 
HSBC Global Research in a note said while public investment grew at a record 21 per cent Y-o-Y in FY16, private investment contracted at a record 1.4 per cent.
The Times of India  Jul 27  Comment 
Bharti Airtel, the country’s top telecom operator, reported a 31% decline in net profit as higher capex costs and greater interest payments dented margins. A growth of 62% in data revenues helped offset the declines as the company also witnessed...
Financial Times  Jul 27  Comment 
Norwegian group’s 18% reduction in operating expenses fails to prevent slide into red
The Economic Times  Jul 24  Comment 
You may try rate cuts but it could make capex even more unattractive vs. acquiring assets for most companies in today's environment.
The Hindu Business Line  Jul 22  Comment 
Biocon’s contract research arm Syngene International has lined up $200 million (around Rs 1,342 crore) capex to bolster its manufacturing capabilities over the next three years. The company plans t...
The Hindu Business Line  Jul 19  Comment 
Storage battery major Exide Industries will be investing ₹1,400 crore over the next two years. Of that, the company plans to invest ₹700 crore at Haldia in West Bengal to introduce high-performance ...
The Hindu Business Line  Jul 7  Comment 
Rane Group, Chennai-based leading auto parts maker, has charted out growth involving a total investment of about ₹ 678 crore over the next three years.The Group informed investors that the total cap...




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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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