Capital expenditure

Capital expenditure (capex), is the amount a company spends on buying fixed assets, other than as part of acquisitions.

As this expenditure is an investment it is not immediately shown in the P & L. The amount of cash expenditure is shown in the cash flow statement and the effects of capex obviously show on the balance sheet. Most companies also comment on capex in their results.

It can be difficult to distinguish between maintenance capex (to keep existing operations going at their current levels) and investment made to drive future growth. Investors may be able to infer a certain amount from comments and by looking at a company's circumstances and track record. Capex that is continuously high which has not lead to high growth is likely to be maintenance capex.

Apparent profits or operating cash flows are not actually making shareholders wealthier if high maintenance capex requirements soak up the money. This is why investors should look at measures such as free cash flow.