CAPEX

CAPEX: Acronym definition, 2 main types, formula & examples

Table of Contents

What is CAPEX?

Two main types of CAPEX

Examples of Capital Expenditures (CAPEX)

Summary

What is CAPEX?

As a founder, you're always looking for ways to save money and increase efficiency. But what about investing in your company? When is the right time to do that? The answer is: it depends. Investing in your company can come in many forms, but one of the most common is CAPEX, or capital expenditure.

Capital expenditure is defined as "the cost of acquiring or improving long-term assets such as property, buildings, or equipment." In other words, it's money that you spend to improve your company's long-term prospects. This could be anything from buying a new piece of machinery to renovating your office space.

There are two main types of CAPEX:

Discretionary CAPEX is optional; it's something that you choose to do because you believe it will improve your business.

Non-discretionary CAPEX, on the other hand, is mandatory; it's something that you have to do in order to keep your business running (think replacing an old piece of equipment that's reached the end of its useful life).

Examples of Capital Expenditures (CAPEX)

Now that we've gone over what CAPEX is and how it works, let's take a look at some examples of capital expenditures:

  • Machinery: If you're a manufacturing company, chances are you need some pretty specialized equipment. And that equipment isn't cheap. Investing in new machinery can be a major CAPEX expense, but if it increases your production capacity or quality, it can be well worth the investment.
  • Property: Whether you're buying a new office space or just renovating your current one, property can be a major capital expenditure. But again, if it improves your business's long-term prospects, it can be worth the investment.
  • Vehicles: If your business relies on vehicles for deliveries or transportation, investing in a new fleet can be a major CAPEX expense. But if it improves your efficiency and bottom line, it can be worth the investment.

In Summary

As a founder, you're always looking for ways to save money and increase efficiency—but sometimes investing in your company is the best way to do that. Capital expenditure is defined as "the cost of acquiring or improving long-term assets such as property, buildings, or equipment." In other words, it's money that you spend to improve your company's long-term prospects. This could be anything from buying a new piece of machinery to renovating your office space. There are two main types of CAPEX: discretionary and non-discretionary. Discretionary CAPEX is optional; it's something that you choose to do because you believe it will improve your business. Non-discretionary CAPEX, on the other hand, is mandatory; it's something that you have to do in order to keep your business running (think replacing an old piece of equipment that's reached the end of its useful life).

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