Capital Expenditures

RECENT NEWS
The Times of India  Mar 27  Comment 
State-run Coal India will more than double its capital expenditure next fiscal to over Rs 10,000 crore to spruce up infrastructure and meet its production target of 1 billion tonnes, according to a top company executive.
The Economic Times  Mar 25  Comment 
Experts added that these top companies have been lapping up cheap forex debt in the past few years due to the higher rate regime in India.
Financial Times  Mar 23  Comment 
Falling oil price knocked nearly one-third from 2014 profit
MarketWatch  Mar 23  Comment 
Chesapeake Energy Corp. shares rise in the extended session Monday after the oil and natural-gas producer cuts its capital expenditure budget.
The Hindu Business Line  Mar 20  Comment 
Looks to continue ‘progressive’ dividend policy
The Hindu Business Line  Mar 20  Comment 
Shares of Vedanta Resources today fell as much as 6 per cent after the mining and oil and gas firm cut FY15 and FY16 capex. The company has cut FY15 capex to $1.5 billion and FY16 capex t...
OilVoice  Mar 18  Comment 
In the US March often means spring break children and young adults have a week off school and classes and families take the time to travel have some adventures in their hometowns or just try to ca
The Economic Times  Mar 12  Comment 
Thakkar says that CG firms will post good results as capex cycle is set to kick off. He believes that the recovery is one or two quarter away.




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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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