What does capital expenditure (CAPEX) typically refer to?

Capital expenditure (CAPEX) typically refers to funds used for the acquisition or upgrades of long-term assets. This includes investments in property, infrastructure, equipment, and technology that will be used to generate future economic benefits for the business. Such expenditures are essential for maintaining or increasing the operational capacity and efficiency of a business, as they often lead to improved productivity or the ability to offer new products and services.

The distinction between capital expenditure and operational expenditure (OPEX) is important: while CAPEX involves spending on assets that will provide value over multiple years, OPEX refers to costs associated with the day-to-day functioning of a business. Understanding this differentiation helps businesses in planning and budgeting for both short-term and long-term financial health.