Capital expenditure (Capex)

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

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

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

The key point about capex is that a company has to get a good return on the money it spends. Spending too much capex on poor projects that deliver weak returns