Capital expenditure (CapEx) is money a business spends to acquire or upgrade long-term assets — buildings, equipment, technology. Unlike operating expenses (OpEx), CapEx is a long-term investment recorded on the balance sheet and depreciated over time. You calculate it as PPE end − PPE start + depreciation.
What Are Capital Expenditures (CapEx)?
CapEx is the spending a company makes to buy, improve, or extend the life of long-term assets — the physical and intangible things that will generate value for years. Because the benefit spans multiple periods, CapEx isn't expensed all at once; it's capitalized on the balance sheet and depreciated across the asset's useful life.
How to Calculate CapEx
CapEx = PPEend − PPEstart + Depreciation ExpenseFrom the balance sheet + income statement
- PPE: Property, Plant & Equipment.
- PPE end / start: PPE value at the end / beginning of the period (balance sheet).
- Depreciation: total depreciation for the period (income or cash flow statement).
Adding depreciation back captures new asset investment without letting the non-cash depreciation charge hide it.
Common Types of CapEx
| Type | Examples |
|---|---|
| Property | Land, buildings, real estate |
| Equipment | Machinery, vehicles, hardware |
| Construction / renovation | New facilities, major upgrades |
| Intangible assets | Patents, trademarks, software |
| Leasehold improvements | Upgrades to leased property |
Pro tip: proper CapEx vs OpEx classification follows accounting standards (GAAP/IFRS) — consult a financial advisor for edge cases.
CapEx vs OpEx
CapEx buys long-term assets (balance sheet, depreciated); OpEx covers day-to-day running costs (income statement, expensed immediately). The distinction drives both reported profit and cash flow timing.
CapEx FAQ
How do you calculate CapEx?
Use CapEx = PPE end − PPE start + depreciation. Take the change in Property, Plant & Equipment from the balance sheet and add back the period's depreciation. The result is what was invested in long-term assets.
What's the difference between CapEx and OpEx?
CapEx is spending on long-term assets, capitalized on the balance sheet and depreciated over years. OpEx is everyday operating cost, expensed immediately on the income statement.
Is CapEx on the income statement or balance sheet?
CapEx lands on the balance sheet as an asset. Only the depreciation of that asset appears on the income statement, spread across its useful life.
Related: CapEx in context
- CapEx — capital expenditure: the general definition and how to calculate it. (you are here)
- CapEx vs OpEx in SaaS — how SaaS businesses classify spend.
- Capitalizing Software Development — when development costs count as CapEx.
