Capital Expenditure

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Definition of 'Capital Expenditure'

A capital expenditure (CapEx) is an investment in fixed assets, such as land, buildings, equipment, or intellectual property. Capital expenditures are often used to improve or expand a company's operations, and they can be financed through debt or equity.

Capital expenditures are typically recorded on a company's balance sheet as an asset. The asset is then depreciated over time, which reduces the company's net income. However, capital expenditures can also generate cash flow, which can be used to offset the depreciation expense.

There are a number of different types of capital expenditures, including:

* Land and buildings: This includes the purchase of land, as well as the construction or renovation of buildings.
* Equipment: This includes the purchase of machinery, tools, and other equipment.
* Intellectual property: This includes the purchase of patents, trademarks, and other intellectual property rights.

Capital expenditures can be a significant expense for companies, but they can also be a valuable investment. By investing in capital expenditures, companies can improve their operations and generate long-term growth.

Here are some additional details about capital expenditures:

* Capital expenditures are often financed through debt or equity. Debt financing can be in the form of loans or bonds, while equity financing can be in the form of stock issuance or retained earnings.
* The decision of whether to finance a capital expenditure with debt or equity depends on a number of factors, including the company's financial situation, the interest rate environment, and the tax implications.
* Capital expenditures can be depreciated over time. Depreciation is an accounting method that allocates the cost of an asset over its useful life. The depreciation expense reduces the company's net income, but it also reduces the company's tax liability.
* Capital expenditures can generate cash flow. Cash flow from capital expenditures can be used to offset the depreciation expense, or it can be used for other purposes, such as paying dividends or investing in new projects.

Capital expenditures are an important part of a company's financial planning. By understanding the different types of capital expenditures and how they are financed, companies can make informed decisions about how to invest their money.

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