What is Capital Expenditure (CapEx)?

Capital expenditure is money a business spends to acquire, upgrade or maintain long-lived physical assets such as buildings, machinery, vehicles or technology infrastructure, capitalised on the balance sheet and depreciated over their useful life.

CapEx differs from operating expenses in accounting treatment: instead of hitting the income statement immediately, CapEx is spread out as depreciation over many years. Two flavours exist: maintenance CapEx (replacing worn assets) and growth CapEx (expanding capacity).

Capex-heavy industries (telecoms, utilities, semiconductors) need large reinvestment to stay competitive; capex-light businesses (software, asset managers) convert most operating cash flow into free cash flow.

Example

A logistics company buys five trucks for CHF 500k total — the spend is capitalised as a fixed asset and depreciated CHF 100k per year over five years, not expensed immediately.

Related terms

Operating Expenses (OpEx)

Operating expenses are the ongoing costs a business incurs to run its day-to-day operations — including salaries, rent, utilities, marketing and software — expensed in the period they occur.

Depreciation

Depreciation is the systematic allocation of the cost of a tangible long-lived asset over its useful life, reflecting wear and tear as an expense on the income statement.

Free Cash Flow

Free cash flow (FCF) is the cash a business generates from operations after deducting the capital expenditures needed to maintain or expand its asset base — the cash truly available to shareholders, lenders and reinvestment.

Balance Sheet

The balance sheet is a financial statement that shows a company's assets, liabilities and shareholders' equity at a single point in time, governed by the accounting equation Assets = Liabilities + Equity.

Frequently asked questions

What is the difference between CapEx and OpEx?+

CapEx is capitalised and depreciated over years; OpEx is expensed in the current period.

Where does CapEx appear on the financial statements?+

The asset on the balance sheet, the depreciation on the income statement, and the cash outflow under investing activities on the cash flow statement.

Why is CapEx subtracted to calculate free cash flow?+

Because it is real cash leaving the business to sustain or grow the asset base.