Capital expenditure
Also known as: capex, capital spending, capital investment
Capital expenditure is the cash a company spends acquiring, constructing, or improving long-lived tangible and that will generate economic benefit over multiple future periods. It appears as a cash outflow in the investing section of the , since it's an investment in the business's productive capacity rather than a cost of current operations.
Unlike , which are fully recognised on the in the period incurred, capital expenditure is capitalised on the as an addition to or , then expensed gradually over the asset's useful life through . This creates a timing difference between when cash leaves the business and when the reflects the cost.
The distinction between maintenance capital expenditure, spending required simply to preserve the existing 's productive capacity, and growth capital expenditure, incremental spending that expands capacity and is expected to generate future beyond what the existing already produces, is analytically important but rarely disclosed separately, so analysts usually have to estimate the split. Only maintenance capex is a true recurring cost of sustaining the business; growth capex is a discretionary investment that could in theory be curtailed without immediately impairing current , though doing so would sacrifice future growth.
The relationship between capital expenditure and is one of the most watched ratios in industries. Capex running consistently below suggests a company is underinvesting in its productive capacity, flattering near term at the expense of future competitiveness, while capex running well above signals an expansion phase where current cash generation is being reinvested to build future earning power. In businesses such as software and professional services, capex is minimal relative to , which is precisely why these business models generate such high and command premium valuations relative to peers.
Data sites sometimes also show net capital expenditure, which subtracts the cash received from selling .