CAPITAL EXPENDITURE

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 What are Capital Expenditures(CapEx)?
• Capital expenditures are funds used by a company to
acquire, upgrade and maintain physical assets such as
property, plants, buildings, technology or equipment.

• They are recorded or capitalized on a company’s

balance sheet instead of expensed on the income
statement.

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 Classification of capital expenditure
• Expenditure is incurred on the new plant and
machinery.
• Incurred for maintaining normal business
operation.
• Incurred for business development.
• Incurred for research work.
• Incurred indirectly for production.
• Incurred for innovation.
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 Types of Capital Expenditures

• Buildings and property

• Upgrades to equipment
• Software Upgrades
• Computer Equipment
• Vehicles
• Intangible Assets
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 Special Considerations

• Capital Expenditures that are poorly planned or

executed can also lead to financial problems in the
future.
• For example, if a company’s management team buys
new technology that quickly becomes obsolete,the
company may be stuck with the debt payments for
many years without much revenue generated from
the asset.
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 Real-World Example of Capital Expenditures
Below is an example of the cash flow statement for
Tesla Inc. for years ending 2019,2020,2021,from the
company’s annual report.

• Tesla listed purchases of property and equipment

for $6.5 billion,$3.2 billion,$1.3 billion in
2021,2020,2019 respectively.
• Purchase of solar energy systems for $32 million
in 2021,$75 million in 2020, and $105 million in
2019.
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 Formula
CapEx=ΔPP&E+Current Depreciation

where:CapEx=Capital expenditures
ΔPP&E=Change in property, plant, and
equipment​

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 Bottom Line
• Companies often incur capital expenditures to invest
in their long-term capabilities.
• If an asset is likely to deliver long-term benefits to a
company, the company may be required to record
the purchase or development as a capital
expenditure,
• depreciate the asset over its useful life, and maintain
part of the purchase on its balance sheet.

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 THANKYOU

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