CAPEX
Capital Expenditure
A company's investment in long-term assets — buildings, machinery, servers, infrastructure.
What it is
CAPEX (Capital Expenditure) is spending on the acquisition or improvement of long-term tangible and intangible assets. It is not expensed directly in the income statement but is capitalized on the balance sheet and depreciated over time.
Types of CAPEX:
- →Maintenance CAPEX — sustaining investments (without them the company would stagnate or decline)
- →Growth CAPEX — investments to expand capacity or enter new markets
For investors, distinguishing these two types matters — growth CAPEX temporarily reduces FCF but builds future earning power.
Why track it
High CAPEX reduces FCF but is not automatically bad. The key question: what return will these investments generate?
Track the CAPEX/Revenue ratio and its trend. For capital-intensive companies (telecom, manufacturing, cloud infrastructure), CAPEX can consume 15–30% of revenue.
Compare CAPEX to EBITDA or OCF — if a company invests more than it earns from operations, it must finance the gap with debt or equity issuance.
Real-world example
Watch out for
Never add CAPEX and OPEX together as "total costs" — they are different categories. CAPEX goes to the balance sheet, OPEX to the income statement. Conflating them distorts your understanding of profitability.