What is capital expenditure (CapEx)?

Capital expenditure (CapEx) refers to investments made by a company in physical assets. This encompasses spending on items that will provide benefits for a long term, such as property, buildings, machinery, and equipment. These purchases are crucial for a company's growth, as they are necessary for maintaining and enhancing the operational capacity of the business.

When a company invests in physical assets, it typically expects to generate returns from these investments over time through increased production capacity or operational efficiency. Unlike operational expenses, which are incurred for day-to-day functioning, CapEx represents a long-term financial commitment aimed at fostering growth and sustainability. Understanding CapEx is vital for assessing a company's future potential and financial health, particularly in capital-intensive industries.