Capex (capital expenditure)
Capex is the money a company invests in long-lived assets: factories, machinery, stores, servers. It splits into maintenance capex, needed to keep the business running as it is, and expansion capex, meant to grow it. The distinction matters because only the first is deducted to reach free cash flow in the strict sense, and because a company that cuts capex can flatter its cash for a few years at the expense of its future.
How it is calculated
Capex is not calculated: it is read off the cash flow statement, on the line for purchases of property, plant, equipment and intangibles. What is calculated is its weight: capex ÷ revenue. A company with €1,000M of sales investing €80M has capex of 8 % of sales, and that percentage says far more than the figure on its own. It is worth splitting in two: maintenance capex, which is what must be spent just to keep the business running as it is, and growth capex, which is spent to sell more. Companies rarely publish that split; a common approximation is to take the year's depreciation as a proxy for maintenance capex, and whatever exceeds it as growth.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is NOT
It is not an expense on the income statement: that is why it does not reduce profit in the year it happens. It is capitalised on the balance sheet and works its way into the income statement gradually as depreciation, over the asset's useful life. That is how a company can be profitable and still run out of cash: capex leaves the bank in full and today, and only reaches profit in instalments. And high capex is not bad in itself —a utility or a telco has it structurally—; what matters is whether what was invested earns above the cost of capital.
See also
See it on real data
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.