Investing term
What is Capital expenditures (CapEx)?
Money spent on long-lived assets — buildings, equipment, software, improvements.
Capital expenditures (CapEx) is money a company spends on long-lived assets — factories, equipment, software, property — that will produce value for years rather than being used up immediately. It appears in the investing section of the cash flow statement, as cash going out to build or buy productive capacity.
CapEx tells you how capital-intensive a business is and what it's investing in. Heavy CapEx can signal a company investing for growth, or simply an expensive business to run — a utility or manufacturer that must constantly spend just to maintain its assets. It's split conceptually into 'maintenance' CapEx (keeping existing assets running) and 'growth' CapEx (expanding). Crucially, CapEx is what's subtracted from operating cash flow to get free cash flow, so it directly determines how much cash is actually left for shareholders.
Capital expenditure is cash spent on factories, equipment, and software that pay off over years. It's subtracted from operating cash to get free cash flow, so heavy CapEx leaves less for shareholders.
For example
A company generates $100M of operating cash flow but spends $30M on new equipment and facilities — that $30M of CapEx leaves $70M of free cash flow.
Learn it by doing
That's Capital expenditures (CapEx) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 14, Reading Financial Statements).
Try the free lesson →Why it matters to you
CapEx matters because it sits between a company's operating cash and the cash actually available to owners — high CapEx eats into free cash flow, while a light-CapEx business converts more of its profit into distributable cash. It also reveals the character of a business: capital-intensive companies must keep spending just to stand still, while asset-light ones can grow with little reinvestment. Understanding a company's CapEx needs is essential to judging both its cash generation and its economics.
⚠ Ignoring maintenance CapEx
Not all CapEx is optional growth spending — much of it is 'maintenance' CapEx a company must spend just to keep its existing assets running. Treating all CapEx as discretionary, or ignoring it when assessing cash flow, overstates how much cash is truly free. A capital-intensive business needs heavy ongoing CapEx just to stand still, which limits what's left for shareholders.