Capital expenditure (Capex)

Capex is short for capital expenditure. This is simply thepurchase of fixed assets such as land, buildings and equipmentfor a business and it is often one of the biggest uses for acompany's cash flow. Capex is usually split into two parts.

Maintenance capex refers to the money that is spent onreplacing worn out assets or bringing existing ones up to date.

Expansionary capex refers to any investment in new capacitydesigned to grow the sales and profits of the business.

The keypoint about capex is that a company has to get a good returnon the money it spends. Spending too much capex on poorprojects that deliver weak returns