Capital expenditures

(CapEx)
- funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or
equipment.
Capital expenditures are payments made for goods or services that are recorded or capitalized on a company's balance
sheet instead of expensed on the income statement.
Types of CapEx

 Buildings may be used for office space, manufacturing of goods, storage of inventory, or other
purposes.

 Land may be used for further development. Accounting treatment may different for land
specifically held as a speculative long-term investment.

 Equipment and machinery may be used to manufacture goods and convert raw materials into

final products for sale.

 Computers or servers may be used to support the operational aspects of a company including

the logistics, reporting, and communication of operations. Software may also be treated as CapEx
in certain circumstances.
 Furniture may be used to furnish an office building to make the space usable by staff and
customers.

 Vehicles may be used to transport goods, pick up clients, or used by staff for business purposes.

 Patents may hold long-term value should the right to own an idea come to fruition through product
development.

•  
Formula and Calculation of CapEx

• CapEx=ΔPP&E+Current Depreciation

where:
CapEx=Capital expenditures
ΔPP&E=Change in property, plant, and equipment​
Capital expenditures are also used in
calculating free cash flow to equity (FCFE)
• FCFE=EP−(CE−D)×(1−DR)−ΔC×(1−DR)

where:
FCFE=Free cash flow to equity
EP=Earnings per share
CE=CapEx
D=Depreciation
DR=Debt ratio
ΔC=ΔNet capital, change in net working capital​
CapEx vs. Operating Expenses (OpEx)

• Capital expenditure should not be confused with operating expenses

 (OpEx). Operating expenses are shorter-term expenses required to
meet the ongoing operational costs of running a business. Unlike
capital expenditures, operating expenses can be fully deducted from
the company's taxes in the same year in which the expenses occur.
• In terms of accounting, an expense is considered to be CapEx when the
asset is a newly purchased capital asset or an investment that has a life
of more than one year, or which improves the useful life of an existing 
capital asset. If, however, the expense is one that maintains the asset at
its current condition, such as a repair, the cost is typically deducted
fully in the year the expense is incurred.1
Examples of CapEx
APPLE PPE (2021) BREAKDOWN
What Type of Investment Are CapEx?

• CapEx are the investments that companies make to grow or

maintain their business operations. Unlike operating expenses,
which recur consistently from year to year, capital expenditures are
less predictable.