What is in news : The Union Steel Minister chaired a meeting  to review the progress of capital expenditure (CAPEX) by Steel CPSEs

ABOUT

Definition : Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.

INFO

• Often used to undertake new projects
• Made to increase the scope of their operations or add some economic benefit to the operation

Things to remember :

Capital expenditure (CapEx)

• Is a payment for goods or services recorded—or capitalized—on the balance sheet instead of expensed on the income statement.
• Spending is important for companies to maintain existing property and equipment, and invest in new technology and other assets for growth.

If an item has a useful life of less than one year, it must be expensed on the income statement rather than capitalized (i.e., cannot be considered CapEx).

Formula and Calculation of CapEx

CapEx=ΔPP&E+Current Depreciation

where:

• CapEx=Capital expenditures
• ΔPP&E=Change in property, plant, and equipment

​What CapEx Can Tell You

• How much a entity is investing in existing and new fixed assets to maintain or grow the business.
• The amount of capital expenditures a company is likely to have is dependent on the industry
• Can be found in the cash flow from investing activities in a company’s cash flow statement.
• Locate the entity’s prior-period PP&E balance, and take the difference between the two to find the change in the company’s PP&E balance.

The Difference Between CapEx and Operating Expenses (OpEx) :

• Operating expenses are shorter-term expenses required to meet the ongoing operational costs of running a business.
• Unlike capital expenditures, operating expenses can be fully deducted from the company’s taxes in the same year in which the expenses occur.
• The key difference between capital expenditures and operating expenses is that operating expenses recur on a regular and predictable basis, such as in the case of rent, wages, and utility costs.
• Capital expenses, on the other hand, occur much less frequently and with less regularity.
• Operating expenses are shown on the income statement and are fully tax-deductible, whereas capital expenditures only reduce taxes through the depreciation that they generate