Simple English definitions for legal terms
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Capital expenditure: Capital expenditure, or CapEx, is money that a business spends to buy, improve, or maintain assets like buildings, equipment, or land. This spending is shown on the cash flow statement and can be calculated by adding the change in plant, property, and equipment from the previous accounting cycle to the current depreciation. Essentially, it shows how much a business is investing in its long-term assets.
Capital expenditures (CapEx) refer to the funds that a company uses to acquire, upgrade, or maintain capital assets. These assets can include buildings, equipment, and other long-term investments that are essential to the company's operations.
CapEx is reflected in the cash flow statement, which shows the inflow and outflow of cash in a business. To calculate CapEx, you can add the current depreciation with the change in plant, property, and equipment (PP&E) from the previous accounting cycle. This measurement shows how much a business invests in capital assets.
The examples illustrate how capital expenditures are investments in long-term assets that are essential to a company's operations. These investments are expected to generate benefits for many years, which is why they are reflected in the cash flow statement and are an important part of a company's financial planning.