CapEx (capital expenditure)

CapEx, or capital expenditure, refers to the funds a business uses to buy, upgrade and maintain physical assets such as buildings, vehicles, equipment or technology. These investments support long-term growth and have a direct effect on the business's strategic planning.

How is CapEx calculated?

In the cash flow statement you find CapEx directly under investing activities, usually described as "purchase of property, plant and equipment". From the balance sheet and the profit and loss account, CapEx can also be estimated as follows:

CapEx = Change in non-current assets + Depreciation

Why does CapEx matter?

• Improving operational efficiency through new technology.
• Expanding the business through expansion projects.
• Maintaining competitiveness with up-to-date infrastructure.

CapEx versus operating costs

CapEx differs from operating costs in that CapEx concerns investments in assets that will be used over several years, whereas operating costs are running expenses consumed in the current period. A new coffee machine is CapEx, while the coffee beans it uses are an operating cost. In the accounts, CapEx is therefore expensed gradually through depreciation, not as a one-off cost.

How do businesses plan CapEx?

The process covers four steps: strategic planning of long-term goals, budget allocation based on resources, risk assessment and ROI analysis, and finally implementation with monitoring.

Example

A café invests NOK 300 000 in an advanced coffee machine with an expected useful life of 6 years, in order to improve quality and attract more customers. With straight-line depreciation this gives a cost of 300 000 / 6 = 50 000 kroner a year in the profit and loss account, even though the whole amount is paid out as CapEx in the cash flow statement in the year the machine is bought.

Tips for handling it effectively

Carry out thorough due diligence, prioritise projects strategically, and establish processes for ongoing monitoring and adjustment. An investment budget makes it easier to plan and follow up CapEx over time.