What is Capital expenditures?

Capital expenditures or CapEx are funds that are used by the company to help maintain, purchase, or upgrade physical assets such as machinery, buildings, technology, etc.

CapEx can be investments made by the company to improve output, undertake new projects, or to maintain current assets.

On the company's balance sheet, CapEx is shown as an investment, rather than being placed on an income sheet as an expenditure.

Calculation

Formula for CapEx is as follows -

CapEx = ΔPPandE + Current Asset Depreciation

ΔPPandE is the change in property, plant, and equipment

What does CapEx tell you?

CapEx tells you how and where the company is investing their money into new and existing assets. An expense will qualify as a CapEx when the investment is made into a new capital asset or they money is used to maintain an already existing one which has a lifetime value of more than a year.