CapEx Examples

Looking to learn more about Capital Expenditures or how to manage them better? Look no further.

Capital Expenditures, or “CapEx” for short, are expenses for physical goods such as machines and property that are expected to:

1. Provide value beyond the current financial reporting period.

2. Increase the ability or scope of the company’s operations.

Capital expenditure related items are reported on cash flow statements and balance sheets, typically associated with investments in property, equipment, and long-term assets.

Note: To learn the difference between CAPEX and OPEX, check out our article “CapEx vs OpEx.”

What is Capital Expenditure (CapEx)?

Capital Expenditure (CapEx) refers to the funds that a company uses to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. These expenditures are crucial for undertaking new projects or investments aimed at expanding the company’s operations or generating future economic benefits. By investing in CapEx, companies strive to enhance their revenue and profitability over time. Whether it’s purchasing new machinery, upgrading existing assets, or acquiring new technology, CapEx plays a vital role in a company’s growth strategy.

Types of CapEx

CapEx examples typically fall into two different categories. The first are expenses required to maintain a company’s current level of operations, while the second covers those necessary to encourage future growth.

CapEx examples might include a new printing press or a fleet of servers for your data center. These items are significant expenses that will provide value for many years and, therefore, can be capitalized over an extended period. Other examples include:

• Capital leases

• Computers/Servers/Related Equipment

• Equipment upgrades (that increase the value beyond normal maintenance)

• Furniture and fixtures

• Land

• Machinery

• Office equipment

• Real Estate (buildings, garages, etc.)

• Software (provided it meets your minimum)

• Vehicles

CapEx on the Cash Flow Statement

Capital expenditures can be found on a company’s cash flow statement under the “Investing Activities” section. This section includes all the investments made by the company in long-term assets, such as PP&E, as well as any proceeds from the sale of these assets. The cash flow statement provides a clear picture of a company’s investing activities, including its capital expenditures, and helps investors and analysts understand the company’s investment strategy and its impact on cash flow.

Impact of CapEx on Financial Statements

Capital expenditures have a significant impact on a company’s financial statements, including the income statement, balance sheet, and cash flow statement. On the income statement, CapEx is recorded as a depreciation expense, which represents the decrease in the value of the asset over its useful life. On the balance sheet, CapEx is recorded as an asset, and its value is depreciated over time. The cash flow statement, as mentioned earlier, shows the cash outflows related to CapEx. Understanding the impact of CapEx on financial statements is crucial for investors and analysts to evaluate a company’s financial performance and make informed decisions.

Additional CapEx Examples

CapEx expenses include intangible assets like a company’s ownership of a patent or license. On a cash flow statement, organizations typically outline all expenditures for a specific accounting period. Capital expenditure related costs are reflected in the cash flow and balance sheet statements, highlighting investments in property and equipment. Because CapEx expenses can significantly impact an organization’s short and long-term financial standing, companies must make intelligent decisions around their purchases.

Importance of CapEx Automation

While capital expenditures are among organizations’ most critical decisions, many struggle to manage a CapEx plan accurately. While ongoing investments tend to make companies more efficient, there’s always the risk that the purchase might not pay off, especially when dealing with a sluggish economy.

For that reason, it helps to have automation processes set up to improve the efficiency of approving capital expenditures. By having each potential purchase go through a streamlined review process, your organization can thoroughly review each expense and weigh the pros and cons of the investment.

Example of a CapEx Process

In larger enterprises, requesting and approving capital expenditures can be complex and involve many different individuals and departments. Automating the CapEx approval process can decrease acquisition time, improve accuracy and provide complete audit reporting. Here’s an example of an automated CapEx form that collects all the critical information for consideration by approvers:

(Click for Larger)

Net capital expenditure is calculated by subtracting the revenue generated from selling fixed assets from the total funds used for acquiring or improving those assets. Understanding net CapEx is crucial in financial analysis as it helps evaluate a company’s investment trends and overall asset base growth.

Once the form is completed, it can be routed through the organization for review, approval, rework, or disapproval.

Additional CapEx Automation Use Cases

Use cases you can incorporate into the CapEx automation approval workflow include:

New computer hardware purchase

Let’s say your company’s considering purchasing new laptops for your finance team. The goal is to enable them to work remotely to improve their work-life balance. With automation, you can create a form that allows stakeholders to answer questions about purchasing the laptops, like:

• How much do the laptops cost?

• How much additional support will the laptops require?

• How much of an increase in productivity will the laptop purchase generate?

• How much can the company save by letting the finance team work from home vs. in the office?

New Machinery and other fixed assets

A manufacturing company wants to increase cement production capacity to meet the demands of a growing industry. The company will invest in physical assets by buying new machinery to increase cement production within the next year to accommodate that goal. Organizations can set up an automation workflow to approve equipment purchases similar to that designed for purchasing new laptops for the finance department.

• How much more can the company make by increasing production?

• What is the cost of the new machinery?

• How much initial capital must the company put up?

• When does the company expect to start seeing a return on its investment?

We have an app for that! Get a headstart on automating your CapEx Process with our CapEx process app. Just import the app, customize it, and launch your new process.

Check Out the App

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