The other category of business spending. Where OPEX hits the P&L immediately, CAPEX builds long-lived assets that get depreciated over years. Different cash impact, different accounting treatment, different planning approach.
Definition
CAPEX (Capital Expenditure) - money spent on long-lived assets used in the business - equipment, vehicles, buildings, machinery, software, leasehold improvements. Capitalized on the balance sheet and depreciated over the asset's useful life.
Common uses
- Capital planning - what assets need to be replaced or expanded
- Cash flow management - CAPEX consumes cash up front
- Free cash flow calculation - operating cash flow minus CAPEX
Watch out
CAPEX doesn't hit the P&L all at once - only depreciation does. This is why a business can appear profitable but have negative cash flow during periods of heavy investment.