What is Capital Expenditure?

Capital Expenditure refers to the funds a company uses to acquire or upgrade physical assets, such as property, buildings, equipment, machinery, or technology, that are expected to have a long-term value and generate income over a period of several years. Capital expenditures are typically large, one-time expenses that are incurred by a company as part of its long-term investment strategy.

Capital expenditures can be made for a variety of reasons, including to replace outdated equipment, to expand operations, to improve efficiency, or to enter into a new market. They are generally planned well in advance and are subject to a rigorous budgeting process, as they can have a significant impact on a company’s financial performance and long-term growth prospects.

In accounting terms, capital expenditures are typically recorded on a company’s balance sheet as a long-term asset, and are depreciated over time to reflect their declining value as they are used in the business.