Capital Expenditure (CAPEX)

Capital expenditure (CAPEX) refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, industrial plants, technology, or equipment. This type of expenditure is made to expand the company's operational capacity, enhance its productive efficiency, or extend the life of existing assets.

CapEx is typically significant in amount and involves investments that provide benefits over a long period, often beyond one year. It is contrasted with operating expenses (OPEX), which cover the day-to-day costs of running a business, such as wages, rent, and utilities.

Examples of capital expenditures include:

• Purchasing new machinery or vehicles

• Constructing a new building or facility

• Upgrading an existing office or plant

• Investing in major IT infrastructure

• Acquiring land or other long-term assets

From an accounting perspective, capital expenditures are not expensed immediately on the income statement. Instead, they are capitalised, meaning the cost is spread out over the useful life of the asset through depreciation (for tangible assets) or amortization (for intangible assets). This approach aligns the expense recognition with the period in which the asset contributes to revenue generation.