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Capital expenditures are the funds your business invests in acquiring, upgrading, or maintaining the fixed assets that give your company long-term value. Including everything from equipment and machinery to buildings and intangible assets (e.g. patents, software), these assets are not to be confused with operating expenditures (OpEx), which cover short-term expenses required for day-to-day operations.<\/p>\n
Capital expenditures are long-term investments recorded on the company\u2019s balance sheet instead of being expensed immediately on the income statement.<\/p>\n
CapEx and OpEx serve quite different purposes. Operating expenses include rent, utilities, payroll, and office supplies, which are necessary to keep the business running in the short term. They are also fully tax-deductible within the same year they are incurred.<\/p>\n
In contrast, capital expenditures are investments in physical assets that will benefit the company over multiple years. Since these purchases are about delivering long-term value, they are capitalised and depreciated over their useful life. Depreciation expense means businesses can then spread the cost of that asset across several tax years.<\/p>\n
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[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/02\/CapEx-.png” alt=”Capex different forms” title_text=”CapEx” _builder_version=”4.26.1″ _module_preset=”default” custom_margin=”-50px|-30px|||false|false” custom_padding=”0px|||||” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.27.4″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
Here are some of the more common examples of capital expenditure for businesses:<\/p>\n
Since capital expenditures are long-term investments, their cost is spread over time through depreciation. You\u2019ll most commonly use one of the following two methods:<\/p>\n
The asset is depreciated evenly over its useful life.<\/p>\n
Example:<\/em> A company buys a piece of machinery for $30,000 with a useful life of six years. Using the straight-line method, it would claim $5,000 per year ($30,000 \u00f7 6).<\/p>\n A higher percentage of the asset\u2019s value is depreciated in the earlier years.<\/p>\n Example:<\/em> If a company buys equipment for $80,000 with a useful life of 10 years and applies a 20% depreciation rate, the depreciation for the first year would be $16,000 (20% of $80,000). In the second year, the depreciation is calculated on the remaining $64,000 ($80,000 – $16,000), which results in $12,800 in depreciation for year two.<\/p>\n Companies invest in CapEx to keep their operations smooth and to expand further, which can give them a competitive edge in the market. A company\u2019s capital expenditures indicate its commitment to innovation and improving infrastructure. Industries like oil exploration, telecommunications and manufacturing all tend to have high CapEx investments because they rely on expensive equipment and facilities.<\/p>\n CapEx also plays a part in a company’s ability to generate future revenue. Strategically allocating resources to acquire and upgrade assets, for example, means businesses can improve their product quality and the customer experience at-large.<\/p>\n Free cash flow (FCF) is a financial metric that revolves around your business\u2019s ability to generate cash after accounting for CapEx. Use the following formula for calculating FCF:<\/p>\n FCF = Operating cash flow – Capital expenditures<\/em><\/strong><\/p>\n A positive FCF means your company has enough liquidity to reinvest in its operations, pay dividends, repay debt, etc. A negative FCF suggests that your business might need to raise capital or take on debt to fund its expenditures.<\/p>\n <\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/02\/Capex-planning-strategy.png” alt=”Capex planning strategy” title_text=”Capex Planning Strategy” _builder_version=”4.26.1″ _module_preset=”default” custom_margin=”-50px|-30px|||false|false” custom_padding=”0px|||||” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.27.4″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” admin_label=”Text” sticky_enabled=”0″]<\/p>\n Your company\u2019s capital expenditure list should line up with your long-term financial goals. Smart financial planning means your CapEx investments will support business growth while balancing short-term liquidity and future value creation.<\/p>\n CapEx investments are capitalised and depreciated over time, unlike operating expenses, which cover short-term costs. You need to recognise the difference between capital expenditure and operating expenditures, along with how to calculate CapEx and how it can impact your financial planning.<\/p>\n [\/et_pb_text][et_pb_text admin_label=”Related terms” _builder_version=”4.27.4″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” locked=”off” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n See related terms<\/strong> <\/p>\n [\/et_pb_text][ba_social_share icon_bg=”#03002e” icon_padding=”10px|12px|10px|12px|true|true” layout=”classic” show_text=”off” btn_padding=”0px|0px|0px|0px|false|false” btn_bg_color=”RGBA(255,255,255,0)” _builder_version=”4.23″ _module_preset=”default” custom_margin=”50px||||false|false” custom_padding=”25px||||false|false” custom_css_before=” content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;” border_width_top_main=”1px” border_color_top_main=”#e4e4e4″ border_radii_icon=”on|5px|5px|5px|5px” global_colors_info=”{}” custom_css_before_last_edited=”off|desktop”][ba_social_share_child _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”facebook” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”linkedin” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”email” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Capital expenditures are the funds your business invests in acquiring, upgrading, or maintaining the fixed assets that give your company long-term value. Including everything from equipment and machinery to buildings and intangible assets (e.g. patents, software), these assets are not to be confused with operating expenditures (OpEx), which cover short-term expenses required for day-to-day operations. […]<\/p>\n","protected":false},"author":28,"featured_media":0,"menu_order":0,"template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-289821","glo","type-glo","status-publish","hentry"],"yoast_head":"\n2. Diminishing value depreciation<\/h3>\n
How capital expenditures affect a company\u2019s bottom line<\/h2>\n
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Capital expenditures for business growth<\/h2>\n
Capital expenditure and free cash flow (FCF)<\/h2>\n
CapEx planning and financial strategy<\/h2>\n
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What are expenses?<\/a>
What is capital?<\/a><\/p>\n