Capital Expenditure: Meaning and Calculation

What is Capital Expenditure?

Capital Expenditure or Capex refers to the expenditure made by a company to purchase, maintain or upgrade its long-term fixed assets. 

Capex includes the cost of furniture, fixtures, machinery, buildings, equipment, and other plants and equipment. It also covers costs related to acquired intangible assets, including licenses, trademarks, and patents.

The amount paid as Capex is the amount that records as a capital asset under a company's financial statements. It is a crucial financial metric that helps in comprehending the investment pattern of a business.

Capital Expenditure Formula: 

Capital Expenditure = Net increase in PP&E + Depreciation expenses during the year. 

Here, PP&E stands for the value of property, plant, and equipment. 

The net increase in PP&E can be calculated by deducting the amount of PP&E at the beginning of the year from the amount of PP&E at the end of the year. 

The amount of the PP&E at the beginning and the end of the year can be taken from the company's financial statements.