Capital Expenditure
Also called: CAPEX, capital expense
What is Capital Expenditure?
Capital expenditure is money spent acquiring or improving long-lived assets — a new outlet fit-out, kitchen equipment, a delivery vehicle. It is capitalised on the balance sheet rather than expensed in one period.
Why Capital Expenditure matters
Capex decisions commit cash for years and are largely irreversible. They belong to a payback and return analysis, not to a monthly expense conversation.
Capital Expenditure formula
Payback period = Initial investment ÷ Annual cash inflow generated
Compare against the asset's useful life before committing.
How Capital Expenditure works in practice
Evaluate each with a payback period and, for larger commitments, an ROI. Remember that capex consumes cash immediately while only depreciation appears in the P&L, which is why a profitable year can still be a cash-poor one.
Frequently asked questions
Routine repairs are expenses; improvements that extend life or capacity are capitalised.