What is CapEx (Capital Expenditure)? Meaning, Formula, and Examples
Introduction
CapEx (Capital Expenditure) refers to the money a company spends to acquire, upgrade, or maintain physical assets such as property, equipment, and infrastructure. These investments are essential for long-term business growth and operational efficiency.
Meaning of CapEx
Capital expenditures are typically large, one-time investments made to improve a company's assets and ensure future profitability. Unlike operational expenses (OpEx), which cover daily running costs, CapEx focuses on long-term benefits.
Real-Life Example
Imagine a restaurant owner who wants to expand business operations.
- Buying a new oven for ₹2 lakh is CapEx because it’s a long-term asset.
- Paying monthly electricity bills is OpEx because it’s a recurring expense.
Formula to Calculate CapEx
You can calculate CapEx using the balance sheet and cash flow statement:
CapEx = Change in Fixed Assets + Depreciation Expense
Where:
- Change in Fixed Assets = (New Fixed Assets - Old Fixed Assets)
- Depreciation Expense is the amount deducted due to wear and tear over time.
Types of CapEx
- Expansion CapEx – Buying new assets to grow the business (e.g., opening a new store).
- Maintenance CapEx – Upgrading or repairing existing assets (e.g., replacing factory machinery).
CapEx vs. OpEx
| Feature | **CapEx (Capital Expenditure)** | **OpEx (Operational Expenditure)** |
|---|---|---|
| Purpose | Investment in long-term assets | Day-to-day business expenses |
| Example | Buying land, machinery, vehicles | Rent, salaries, utility bills |
| Frequency | One-time or infrequent | Regular and ongoing |
| Accounting Treatment | Recorded as an asset, depreciated over time | Deducted as an expense in the same year |
Benefits of CapEx
✅ Long-term business growth – Helps expand and improve operations.
✅ Increases asset value – Investments improve the company’s net worth.
✅ Enhances efficiency – New technology or equipment improves productivity.
Conclusion
CapEx is a crucial financial investment that helps businesses grow by acquiring or upgrading long-term assets. Properly managing CapEx ensures sustainable business development and competitive advantage.