Definition
Capex vs Opex
Capex is spending on long-lived assets that is capitalised and depreciated over time, while opex is day-to-day operating expense charged fully in the period incurred.
Capital expenditure buys or upgrades assets like plant, machinery and buildings, appearing in investing cash flow and on the balance sheet before being expensed gradually via depreciation. Operating expenditure covers running costs like salaries, rent and utilities, hitting the P&L immediately.
The distinction affects both profit timing and cash flow. Treating an outlay as capex defers its impact on reported profit, so the line between capex and opex, especially for software and maintenance, is an area where accounting judgement and even manipulation can arise.
Related terms
- Capital Expenditure (Capex)Capex is the money a company spends on acquiring or upgrading long-term assets like plants, machinery, and equipment to grow or maintain operations.
- Investing Cash FlowInvesting cash flow is the cash a company spends on or receives from buying and selling long-term assets and investments.
- DepreciationDepreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting wear and obsolescence as an expense.
- Capitalisation (Costs)Capitalisation is recording an expenditure as an asset on the balance sheet rather than an immediate expense, to be written off over future periods.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.