Capital Expenditure (CapEx)
Spending on long-term assets like equipment, property, or technology that benefits the business over multiple years.
Capital expenditure (CapEx) is spending on assets that will provide value for more than one accounting period. Unlike operating expenses (which are fully expensed in the period incurred), CapEx is capitalised on the balance sheet as an asset and then depreciated or amortised over its useful life.
Common CapEx items include machinery and equipment, office build-outs, vehicles, computer hardware, and in some cases, software development costs. The distinction between CapEx and OpEx matters significantly for financial reporting, tax treatment, and performance metrics.
CapEx decisions are typically evaluated using NPV, IRR, or payback period analysis. Because CapEx ties up cash for extended periods, it requires careful planning and alignment with the company's strategic priorities and available funding.
Free cash flow — the metric most watched by investors and acquirers — is calculated as operating cash flow minus CapEx. A company with high CapEx requirements generates less free cash flow, even if operationally profitable. This is why asset-light business models (SaaS, marketplaces) tend to trade at higher valuations than capital-intensive ones.
Related Terms
Day-to-day expenses required to run the business — salaries, rent, utilities, marketing.
The systematic allocation of a tangible asset's cost over its useful life.
A report showing how cash moves in and out of a business across operating, investing, and financing activities.
The difference between the present value of cash inflows and outflows — used to evaluate investment decisions.