Analysis · Investing Glossary
What Is Capital Expenditure?
Money a company spends on long-term physical assets like equipment, property, or technology.
The Full Definition
Capital expenditures (often shortened to "capex") are funds a company spends acquiring or upgrading long-term physical assets — factories, equipment, property, technology infrastructure — rather than day-to-day operating costs. Capex is subtracted from operating cash flow to calculate free cash flow, since that money isn't available to return to shareholders. Capital-intensive businesses (utilities, telecoms, semiconductor manufacturers) typically have high capex relative to revenue, while software and services businesses often have very little.
Real-World Example
A cloud computing company spending $5 billion a year building data centers has high capex — that spending is necessary for growth, but it eats directly into how much free cash flow the business generates for shareholders.
Related Terms
- Free Cash Flow (FCF)Cash a company generates after accounting for capital expenditures.
- Balance SheetA financial statement showing what a company owns, owes, and is worth at a single point in time.
- Net IncomeA company's total profit after all expenses, taxes, and costs are subtracted from revenue.
- Economic MoatA durable competitive advantage that protects a company's profits from competitors.