Reading the accounts
Capital expenditure
Also called Capex
Money spent buying or upgrading long-lived assets like property, equipment and technology.
How it works
Capex appears in investing cash flows rather than as an expense, then reaches the income statement gradually as depreciation.
It splits usefully into maintenance capex, needed to keep the business running, and growth capex, which is discretionary. Companies rarely disclose the split, and it matters a great deal.
Where it misleads people
Cutting capex boosts free cash flow immediately and damages the business slowly. Several years of capex below depreciation is a signal worth investigating.
Related terms
- Free cash flowCash left over after paying for the investment needed to maintain and grow the business.
- Depreciation and amortisationSpreading the cost of a long-lived asset across the years it is used, rather than expensing it at once.
- Cash flow statementThe statement tracking actual cash moving in and out, split into operating, investing and financing.
- Return on invested capitalOperating profit after tax as a percentage of all the capital invested in the business, debt and equity alike.
Mentioned in
More in Reading the accounts
- Cash burn
- Breakeven
- Cash conversion cycle
- Book value
- Balance sheet
- Cost of goods sold
- Audit opinion
- Deferred revenue
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.