4030 Smith Rd., Suite 200, Cincinnati, OH 45209

Do Not Forget About CAPEX

Image 5-3-23 at 9.11 AM

When evaluating a business to purchase or invest in do not forget about capital expenditures – more commonly known by the acronym CAPEX. CAPEX refers to the funds used by a company to acquire, upgrade, or improve fixed assets such a property, plant, and equipment. CAPEX also includes assets that improve software and technology of the company. CAPEX is used on assets that generate income and are expected to provide a benefit over a long-term time period of a year or more. 

Here are some common examples of CAPEX.

  1. Property: Purchasing or constructing buildings or facilities to be used for business purposes, such as offices, manufacturing plants, warehouses, or retail spaces.
  1. Equipment: Investing in machinery, vehicles, tools, or other equipment needed to produce goods or services. Examples include buying a new printing press for a newspaper company or a new MRI machine for a hospital.
  1. Technology: Investing in software, hardware, and other technology infrastructure to improve business processes, increase efficiency, or enhance customer experience. For example, upgrading a company’s website or investing in a new accounting software.
  1. Intangible assets: Acquiring intangible assets such as patents, copyrights, or trademarks that have long-term value to the business.
  1. Research and Development: Funding research and development (R&D) projects to develop new products, improve existing ones, or discover new technologies.
  1. Infrastructure: Investing in public infrastructure projects such as roads, bridges, and public transportation systems that can benefit the business and the wider community.

Therefore, by nature these expenses do not show up on an income statement. On an income statement, a company reports its revenue and expenses over a specific period, usually a quarter or a year. The expenses reported on the income statement include both operating expenses (OPEX) and non-operating expenses, such as interest expenses and taxes. CAPEX is not included in the expenses section of the income statement because it is a long-term investment that is expected to benefit the company over several years. Instead, CAPEX is a cash outflow reflected on a company’s cash flow statement but not directly on the income statement. 

CAPEX will be shown as an increase to fixed assets on a company balance sheet and will be depreciated over time. Therefore, when evaluating a business, capture the CAPEX number and use that to reduce the net income of the business to get an accurate picture of that company’s profits. 

 

To schedule a call to review your financial plan and investments  Click Here

SUBSCRIBE TO THE FINANCIAL INCLINE
 

This content not reviewed by FINRA

Incline Wealth Advisors, LLC, its owners, officers, directors, employees, subsidiaries, service providers, content providers and third-party affiliates (referred to as “IWA”) do not offer the sale of securities or other investments.  None of the information provided is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering.

The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. IWA does not promise or guarantee any income or particular result from your use of the information contained herein.  Under no circumstances will Incline Wealth Advisors, LLC be liable for any loss or damage caused by your reliance on the information contained herein.

It is your responsibility to evaluate any information, opinion, or other content contained. Please seek the advice of professionals regarding the evaluation of any specific content. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.  The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Incline Wealth Advisors, LLC(referred to as “IWA”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. 

IWA does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall IWA be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if IWA or a IWA authorized representative has been advised of the possibility of such damages. 

In no event shall Incline Wealth Advisors, LLC have any liability to you for damages, losses, and causes of action for accessing this site. 

Related Posts