Definition of Capital Expenditures
Capital expenditures are the amounts spent for tangible assets that will be used for more than one year in the operations of a business. Capital expenditures, which are sometimes referred to as capex, can be thought of as the amounts spent to acquire or improve a company’s fixed assets.
The capital expenditures increase the respective asset accounts which are reported in the noncurrent asset section of the balance sheet entitled property, plant and equipment. Once the assets (except for land) are placed in service they are depreciated over their useful lives. The accumulated depreciation for these assets is also reported as part of the property, plant and equipment.
The amount of capital expenditures for an accounting period is also reported in the cash flow statement as a negative amount (since it is a cash outflow) in the investing activities section. Many financial analysts subtract the capital expenditures amount from the cash from operating activities to arrive at the company’s free cash flow.
Examples of Capital Expenditures
Capital expenditures include the amounts spent to acquire or make significant improvements to land, buildings, machinery, equipment, furniture, fixtures, vehicles, computer information systems, leasehold improvements, etc.
