Capital expenditure

A capital expenditure is the amount a business spends on buildings, factories, equipment, etc. It is itemized on the statement of cash flows.

Expanded Definition

Capital expenditures, often abbreviated as "capex," is the amount of money a company spends during some time period to purchase revenue-generating assets. These can be manufacturing plants, delivery trucks, or even computers used by the sales people or managers.

Not everything purchased by a company is capex. For example, inventory is not, even though it, too, is an asset. Nor are investments in stock, bonds, or other companies, even though these might provide non-operating revenue which goes toward net income. Just assets that are used to generate revenue and which are not part of the product sold.

On the statement of cash flows, it is commonly the first (sometimes the second) line item under the sub-total of cash flow from operations. It is always expressed as a negative number because, on that statement, the convention is that cash flowing out of the business (as in a purchase) is negative cash flow. Sometimes it is called "purchase of plant, property, and equipment."

Capex will increase the total assets (usually long-term assets) by the amount spent in the period. However, the increase in the amount(s) of assets listed on the balance sheet won't match up exactly with how much was spent on capex because depreciation reduces the balance of those assets during the period.

Related Fool Articles

• "Discretionary" Capital Expenditures

Related Terms

• Capital
• Free cash flow
• Negative cash flow

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