Capital Expenditure

Capital expenditure is money spent on long-lived assets — factories, machinery, buildings, servers. Because it buys future productive capacity, it is separated from ordinary operating costs.

It is not expensed all at once. The spending is capitalised and then depreciated over several years, so profit does not fall much even in a year of heavy investment.

Cash, however, definitely leaves. That is why profit can hold steady while cash dries up, and why free cash flow — operating cash minus capex — must be read alongside earnings.

Distinguishing the type matters. Maintenance capex replaces worn equipment; growth capex adds capacity. A business that continually requires large maintenance spending is less attractive.

A sudden jump in capex reads two ways: confidence in growth, or the start of overreach. Whether revenue rose correspondingly a few years later settles which it was.