The Power of Ten - 10 steps to understanding CAPEX

Here's a simplified explanation of CAPEX (Capital Expenditure) in ten easy-to-understand steps:

1. CAPEX stands for "Capital Expenditure."

2. It refers to the money a company spends on acquiring, improving, or maintaining long-term assets that will provide benefits for the company beyond the current year.

3. Long-term assets include things like buildings, equipment, machinery, vehicles, or technology infrastructure.

4. CAPEX is different from regular expenses (like salaries or utilities) because it involves investing in assets that will be used by the company for several years.

5. Examples of CAPEX could be buying a new manufacturing plant, upgrading computer systems, or purchasing delivery trucks.

6. CAPEX is an investment made by the company to support its operations, increase productivity, or expand its business.

7. Instead of deducting the full cost of the asset in the year of purchase, CAPEX is typically depreciated (spread out) over the useful life of the asset.

8. Depreciation is an accounting method used to allocate the cost of the asset over time, reflecting its decreasing value as it gets older or wears out.

9. CAPEX decisions are important because they involve significant financial commitments and can have long-term implications for the company's operations and profitability.

10. Analysing CAPEX helps assess a company's growth strategy, its investment in future productivity, and its ability to maintain and expand its business.

Remember, while this explanation simplifies the concept of CAPEX, it's always recommended to consult financial professionals or resources for a more detailed understanding in real-world situations.

Note about the author: Andrew Hulbert is a multi-award winning entrepreneur, non-exec director, speaker, author, platelet donor and philanthropist. The ‘Power of Ten’ summarises Andrew’s learnings across the last decade and looks to share some of the valuable mistakes, lessons and learnings during that time. For a succinct summary of Andrew’s career you can visit: https://www.iwfmawards.org/previous-winners/winner-outstanding-contribution-to-workplace-and-facilities-management-2022/ . If you’d like to start a conversation, please direct message on LinkedIn.