What Are Capital Expenditures?

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What are CapitalExpenditures, or Cap-ex?

Cap-ex is the amount of money a company spends on long-term assets that are expected to help the company produce revenues for the foreseeable future.

Boy, that sounds like a dictionary doesn't it?

Well, you have your own form of this as well.

Let's talk about you. Then we'll be able to talk business.

You have monthly and yearly expenses like household items, food, clothes, gas and electricity, interest and tax.

But when you buy that house or that car you may not record that as an expense on your income statement. That's on your cash flow statement. It's a long-term asset, that beautiful house of yours. You put down a chunk o' change and then took on debt for the rest of the financing.

On a running basis, your own earnings will be income from your job minus all those expenses we talked about.

And on a running basis, the value of your house should (hopefully) rise. You could even monetize it by renting it out (so its a long-term asset producing income for you).

Well companies aren't so different.

To see exactly how and why that is, watch the video above. 

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