Financial modelling terms explained

Capital Expenditure

The capital expenditure is the amount of money a company spends on assets that are not used up in a year. This expenditure is also referred to as CapEx.

What Is Capital Expenditure?

In financial modelling, capital expenditure (capex) is the amount of money that a company spends on fixed assets, such as property, equipment, and software. Capex can be either recurring, such as payments for rent and maintenance, or one-time, such as the purchase of a new factory. Capex is an important consideration for companies because it affects their cash flow and balance sheet. In order to make sound financial decisions, managers need to accurately forecast their company's capex requirements.

How Do You Calculate Capital Expenditure?

In order to calculate capital expenditure, you need to know the depreciation and amortization expenses for the year. Add these expenses to the net fixed assets for the year. This will give you the total amount of capital expenditures for the year.

What Is the Difference Between Capital Expenditure and Operating Expenditure?

In financial modelling, capital expenditure (CAPEX) is defined as the purchase of an asset that will be used in the production of a good or service. This asset will have a life of more than one year and will be used to generate revenue. Operating expenditure (OPEX) is defined as the day-to-day costs incurred in the production of a good or service. These costs are incurred in the current period and do not have a life of more than one year.

What Is An Example of a Capital Expenditure?

In the business world, a capital expenditure (CE) is an investment in long-term assets, such as property, plant, or equipment. These assets are necessary for a company to conduct its operations, and typically have a lifespan of more than one year. In order to finance a CE, a business will often use its own cash reserves, or take out a loan from a bank or other lending institution.

There are a number of different types of CEs, each with its own benefits and drawbacks. Some of the more common ones include:

1. Property purchase: This is when a company buys or leases land, buildings, or other physical property for use in its business.

2. Plant and equipment purchase: This is when a company buys machinery or other equipment to use in its operations.

3. Business expansion: This is when a company expands its operations by opening new locations or acquiring other businesses.

4. Research and development: This is when a company invests in new products or services that could help boost its bottom line.

5. Marketing and advertising: This is when a company spends money on advertising and marketing initiatives in order to attract new customers or increase brand awareness.

6. Debt refinancing: This is when a company takes out a new loan to pay off an existing loan, often at a lower interest rate.

When making a CE decision, a business must weigh the costs and benefits of each option and determine which is the best fit for its needs. Some of the factors to consider include the initial investment required, the expected lifespan of the asset, the expected returns on the investment, and the company's current financial situation.

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