Capital Expenditures

RECENT NEWS
Forbes  Aug 14  Comment 
Meb Faber's Idea Farm republished a great study by Credit Suisse's Michael J. Mauboussin and Dan Callahan, CFA that breaks down what American companies have been doing with their cash over the past 33 years: Capital Allocation Evidence,...
The Hindu Business Line  Aug 12  Comment 
Britannia Industries Ltd is planning a capital expenditure of between Rs 150 crore and Rs 200 crore over the next two years.   According to the Britannia Industries Chairman...
Reuters  Aug 6  Comment 
The U.S. economy continues to recover from the depths of the Great Recession, although its speed, trajectory and cruising altitude remain the subject of fierce debate.
The Hindu Business Line  Jul 23  Comment 
The Chairman of Cairn India, Navin Agarwal, has announced an investment of $3 billion towards the company's three-year capex programme. He made the announcement at
The Economic Times  Jul 10  Comment 
The CAG has praised the Trinamool Congress government for improving the fiscal situation in West Bengal but pulled it up for low capital expenditure.
StreetInsider.com  Jul 9  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Phillips+66+%28PSX%29+Approves+%243.9B+Capex+Plan%2C+Announces+%242B+Buyback/9649038.html for the full story.
The Economic Times  Jul 8  Comment 
"The disappointment of the market was in regards to the capital expenditure plan of the railways which came in short."
Finance Asia  Jul 5  Comment 
While Abenomics has revitalised Japanese industry, the rest of Asia – particularly the energy and materials sectors – looks set for a lengthy period of retrenchment.
Financial Times  Jun 30  Comment 
Spending likely to decline by 0.5% this year in real terms despite companies holding historically high levels of gross cash
The Australian  Jun 27  Comment 
FRENCH energy utility GDF Suez can trace its lineage to at least as far back as 1858, when work started on the Suez Canal.




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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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