Capital Expenditures (CapEx)
Definition
Capital expenditures are cash outflows to acquire or upgrade long-lived physical assets — property, plant, and equipment such as factories, machinery, and data centers. Rather than being expensed immediately, capex is capitalized on the balance sheet and depreciated over the asset's useful life.
Capex appears in the investing section of the cash flow statement (often labeled "purchases of property and equipment"), not on the income statement. Its income-statement footprint arrives gradually through depreciation.
Analysts distinguish maintenance capex (required to sustain current operations) from growth capex (expanding capacity). In a steady state, capex tends to converge toward depreciation; growing companies typically spend capex above depreciation.
Why interviewers ask
Capex is central to the "why isn't EBITDA cash flow?" question and to DCF terminal-value sanity checks (in perpetuity, capex should not be far below depreciation, or the asset base shrinks forever while the company supposedly grows). The classic statement-walk trap: buying a $100 machine with cash changes no income statement line in the period of purchase.
Related terms
Interviews don't test definitions — they test recall under pressure.
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