January 13, 2021

CapEx vs OpEx explanation

CapEx versus OpEx. Capital Expenditures versus Operating Expenditures. There is a finance and accounting aspect to the terms CapEx and Opex, as well as a business model aspect. Let’s discuss both, and walk through some examples of how the terms CapEx and OpEx are used.

CapEx is Capital Expenditures. OpEx is Operating Expenditures. What these terms have in common is the word expenditures, you are spending money, but in different ways.

Capital Expenditures. As a working definition of CapEx, this is money spent by a business or organization to acquire or upgrade fixed assets, such as buildings, machines and equipment.

Operating Expenditures. If CapEx is the upfront investment to buy a fixed asset, then a working definition of OpEx is the ongoing spending to keep the fixed asset running.

For an expenditure to be considered as CapEx, you have to own an asset. There is a threshold level for expenditures to qualify as CapEx: there must be a useful life of more than one year, and the asset value must be more than a minimum amount. I have worked with a company where this minimum was $2500, and others where it was $7000. Please check with the finance department of your company on what your minimum level is.

How about that part of maintenance where you are improving the performance of a machine and increase its capacity? What about software developed for internal use? What about the development phase of R&D? You could argue in all three cases that future economic benefits are generated by these projects, and according to the matching principle in finance it would be appropriate to capitalize these costs, and subsequently depreciate or amortize these assets over their useful life. Each of these cases will have to be evaluated carefully against current US GAAP or IFRS rules (depending on where your company is listed), and you will have to meet very strict criteria to apply a CapEx treatment.

How does CapEx affect the financial statements? Let’s take a look at the balance sheet, the income statement and the cash flow statement, when we answer the question “does this expenditure qualify for CapEx (it meets the capitalization criteria) or it does not qualify as CapEx?”.

First of all, the CapEx spend is a cash outflow recorded in “Cash From Investing Activities”. On the balance sheet, it gets accounted for as an asset, in the Plant and Equipment category. Over the years of its useful life, the asset gets depreciated, and the depreciation charge hits the income statement or P&L in each of the years of the assets’ economic life. I will link to my video about deprecation if you are interested in learning how that works:

Do you go for the upfront CapEx investment to own servers for your datacenter, where you are unsure how much capacity you will actually need, or do you pay a monthly OpEx fee for an external cloud service where it’s pretty much “pay as you go” and “spend what you use”? I can’t give you a “one size fits all” answer to this question, it’s really something that an IT manager and a finance manager should analyze together. Risk and scale should be part of this conversation. The evaluation is a variation of the age-old “own versus use”, “buy versus rent”, “buy versus lease” discussion, which is more relevant than ever before in these days of ubiquitous digital devices and tools, disruption of mobility models through Uber and others, and disruption of the travel and leisure models through Airbnb.

This video discusses the impact of CapEx versus OpEx on the balance sheet, income statement, and cash flow statement, as well as ratios such as ROA. For more information on ROA and DuPont analysis, watch

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

Nguồn: https://romebydiamondlotusq2.com/

Xem thêm bài viết khác: https://romebydiamondlotusq2.com/tong-hop/

Related Posts

Hướng dẫn sửa lỗi Not Responding trong Word – Quên không lưu word,Excel

June 25, 2020

June 25, 2020

Hướng dẫn sửa lỗi Not Responding trong Word – Quên không lưu word,Excel. Video Hướng dẫn sửa lỗi Not Responding...

How To Create Facebook Cover Videos Using Premiere Pro CC

June 18, 2020

June 18, 2020 42

❗ Save time and download the Adobe Export Preset here: Facebook Pages can now use COVER VIDEOS and today I’m...

Luyện chữ đẹp- Luyện chữ đẹp Thanh Hiền- Bảng chữ hoa sáng tạo

July 3, 2020

July 3, 2020 36

Luyện chữ đẹp Thanh Hiền trân trọng gửi tới các bạn bảng chữ hoa sáng tạo bao gồm cả chữ...

Download Playerunknown's Battlegrounds Full Version Key PC – NO CRACK/TORRENT [Multiplayer]

June 12, 2020

June 12, 2020 11

Download Playerunknown’s Battlegrounds Full Version Key PC – NO CRACK/TORRENT Download Links: – Full Game: About the game: PlayerUnknown’s Battlegrounds...

Tạo USB và cài Win 7 32bit mới nhất 2019

July 2, 2020

July 2, 2020 36

Xin chào các bạn! Hôm nay mình xin chia sẻ với các bạn video: Tạo USB và cài Win 7...

Maxinfo #15 – Nhạc 128, 320Kbps và Lossless khác nhau thế nào?

June 8, 2020

June 8, 2020 46

Súp Heo đã trở lại với một video Maxinfo, chia sẻ với các bạn về chất lượng âm thanh. Liệu...

Hướng dẫn tùy biến desktop windows đẹp hơn cả MacOs

June 9, 2020

June 9, 2020 19

Thanks for watching, remember to leave a like, comment and subscribe! This works on Windows XP/Vista/7/8/8.1/10. Links used on the...

Cách đọc bảng chữ cái tiếng Việt chuẩn | Dạy bé học

June 23, 2020

June 23, 2020

Cách đọc bảng chữ cái tiếng Việt chuẩn | Dạy bé học Xem thêm các clip mới: Làm đồ chơi...

Capital Expenditures vs Operating Expenditures

July 5, 2020

July 5, 2020 23

This video will first explain what capital expenditures and operating expenditures mean, talk about the difference between these two terms...

Đập hộp thùng hàng 2 kg: bàn phím cơ Fuhlen SM680R RBG, chuột Fuhlen X100S và DeepCool XFAN Led Blue

July 1, 2020

July 1, 2020 5

Bàn phím cơ giá rẻ Fuhlen SM680R gồm 87 phím cùng led RBG 16,8 triệu màu kém với đó là...


June 30, 2020

June 30, 2020 30

Worse than the previous ver. Why do i put it on Soundcloud: This is a parody of “Bùa Yêu –...

Phân biệt giữa GPT và MBR

June 25, 2020

June 25, 2020 1

Thiết lập một ổ đĩa mới trên Windows 10 hoặc 8.1 sẽ cho phép bạn lựa chọn giữa GPT (GUID...

Các Cấp Độ của HAKI VŨ TRANG [One Piece Chapter 947]

June 8, 2020

June 8, 2020 42

Haki Vũ Trang là gì? Theo lời Rayleigh thì haki vũ trang giống như một lớp giáp vô hình bao...

Hướng dẫn Hack nick Facebook mất 100% ( Quý Bánh ) #2

June 8, 2020

June 8, 2020 27

Hướng dẫn Hack nick Facebook mất 100% ( Quý Bánh ) #2 #Lê Tiến Dũng #Lê Tiến Dũng hacker #Lê...

Cách chơi AOE online trên garena mới nhất 2018

July 3, 2020

July 3, 2020 37

Cách cài Garena để chơi AOE mới nhất 2018, Link tải AOE, Garena bản chuẩn: Link dự phòng : Hướng...


Leave a Reply

Your email address will not be published. Required fields are marked *