Glossary

Capital Expenditure (CapEx)

Definition

Capital Expenditure (CapEx) refers to the funds a business uses to acquire, upgrade, or maintain physical assets, such as property, equipment, or technology. These expenditures are long-term investments aimed at improving or extending the life of an asset to support business operations and growth.

For startups, understanding CapEx is essential for financial planning, managing cash flow, and making strategic investment decisions to scale operations.

Types of Capital Expenditure

  1. Tangible Assets: Investments in physical assets, such as buildings, machinery, vehicles, and equipment.
  2. Intangible Assets: Investments in non-physical assets, such as patents, software, or trademarks.
  3. Maintenance CapEx: Spending to repair or replace existing assets to maintain operational efficiency.
  4. Growth CapEx: Investments in new assets to expand capacity, improve performance, or enter new markets.

How is Capital Expenditure calculated?

CapEx can be calculated using the formula:

CapEx = Change in PP&E (Property, Plant & Equipment) + Depreciation Expense

  • PP&E: The net value of physical assets recorded on the balance sheet.
  • Depreciation: The reduction in value of an asset over time due to wear and tear.

Example: If the PP&E value increased by €30,000 and the annual depreciation is €5,000:
CapEx = 30,000 + 5,000 = €35,000

This means the company spent €35,000 on acquiring or upgrading assets.

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