CAPEX 101 – What is it and how should it be understood

cap1

1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)
Loading...

What is CAPEX?

CAPEX is the short form of capital expenditure, meaning you are using funds to acquire/upgrade fixed assets like buildings, machines, equipment, etc.

CAPEX is not to be confused with OPEX ( operational expenditure ) that are short term expenses made to support the ongoing operations.

Why should I care about CAPEX?

Capex is commonly found on the Cash Flow Statement as “Investment in Plant Property and Equipment” or something similar in the Investing subsection.

You should care much about CAPEX because CAPEX is a major factor that can influence your cash flow and as we know cash flow is important for any business.

A company with a high CAPEX has a short cash position.

Examples of CAPEX vs. OPEX

  1. A company buys a copy machine (CAPEX), and buys toner and paper to operate it (OPEX).
  2. Installing a new bathroom in company offices (CAPEX); fixing the broken toilet so workers can use it (OPEX).
  3. Large media agency acquires a smaller media company in a cash-and-stock deal (CAPEX); pays the cost to move existing employees into the consolidated company’s new offices (OPEX).

To find the right CAPEX vs. OPEX balance you need a very good understanding of your business, your financials, and your goals.

TopCFO can help you in finding the right balance CAPEX/OPEX.

Get in touch with us to start your TopCFO quest.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: