Investing Basics

Capital Expenditures (Capex)

Capital expenditures are cash outlays or accrued investments for long-lived productive assets such as property, plant, equipment, networks and major improvements.

Updated 2026-09-01 · Foundation

Why capex matters

Capex shows how much a business is investing in assets expected to support operations beyond the current period.

Examples include:

factories
machinery
data centers
stores
network equipment
vehicles
buildings
major software or infrastructure projects

The economic question is not simply:

How much did the company spend?

It is:

What return is the company likely to earn on that spending?

Capex is different from ordinary operating expense

An ordinary expense is generally recognized through the income statement as it is incurred.

A capital expenditure creates or improves a long-lived asset.

The accounting cost is then often recognized over time through:

depreciation
amortization

That timing difference is why a company can spend substantial cash on capex while current-period earnings remain relatively strong.

Cash capex vs. accrued capex

This distinction is easy to miss.

A company can order and receive equipment before paying the invoice.

The asset addition can be recorded in:

property, plant and equipment
accounts payable or accrued liabilities

before the cash payment occurs.

A 2026 SEC filing reported capital expenditures that excluded certain accrued but unpaid capital spending and included payment of capital expenditures accrued in the prior year.^[2]

That means:

asset additions during a period

and:

cash paid for capex during a period

can differ.

Basic example

Assume a company reports:

operating cash flow: $900 million
cash capital expenditures: $350 million

A common simple free-cash-flow calculation is:

$900M − $350M = $550 million

That is why capex is a critical input in free cash flow.

ROIStreet’s GLS-039 — Free Cash Flow covers the limitations of that calculation.

Capex is not automatically bad

High capex can reduce current free cash flow.

That does not make the spending poor.

The company may be investing in:

new capacity
productivity improvements
safety
regulatory compliance
expansion
replacement of aging assets

A growing infrastructure company may need heavy capex to create future earnings.

The relevant issue is return on the capital.

Low capex is not automatically good

A company can boost short-term free cash flow by reducing capital spending.

That can be healthy if:

a major project was completed
prior overinvestment is being corrected
asset efficiency improved

It can be dangerous if the company is:

deferring maintenance
allowing equipment to age
underinvesting in capacity
falling behind competitors

Current cash flow can improve while long-term economics weaken.

Maintenance vs. growth capex

Analysts often separate capex conceptually into:

maintenance capex and growth capex

Maintenance capex is intended to sustain existing operations.

Growth capex is intended to expand capacity or earnings power.

Public financial statements do not always provide a clean split.

Management estimates can be useful but subjective.

That means "maintenance free cash flow" can depend heavily on judgment.

Capex and depreciation are related but not interchangeable

Depreciation is an accounting allocation of prior capitalized cost.

Capex is current investment in long-lived assets.

Suppose:

depreciation: $250 million
capex: $500 million

The company is spending twice current depreciation.

That can indicate:

expansion
inflation in replacement cost
catch-up investment

It does not automatically mean growth.

Conversely, capex below depreciation can be sustainable for some periods without implying asset decay.

Capex and EBITDA

EBITDA adds depreciation and amortization back.

It does not deduct capex.

That makes EBITDA potentially generous for capital-intensive businesses.

Two companies can each report:

$1 billion of EBITDA

Company A: - annual capex: $100 million

Company B: - annual capex: $600 million

The cash economics are very different.

ROIStreet’s GLS-051 — EBITDA should be read with capex for exactly this reason.

Capex and return on capital

Heavy capex only creates value when the incremental returns justify the investment.

A company spending aggressively while earning declining returns on capital can destroy value despite revenue growth.

Useful companion measures include:

ROIC
ROCE
free cash flow
asset turnover
operating margin

Capex amount without return analysis is incomplete.

Real property-and-equipment disclosure

A 2026 SEC filing showed property, plant and equipment across:

land
buildings
machinery and equipment
construction in progress

and separately disclosed noncash capital expenditures reflected in accounts payable and accrued expenses.^[3]

That illustrates how capex connects:

investing activity
balance-sheet assets
accrued liabilities

Rogers example

Rogers reported capital expenditures of $1.503 billion for the first six months of 2026 and explained that its reported measure included additions to property, plant and equipment net of specified items, while excluding spectrum licenses, right-of-use assets and business-combination assets.^[4]

That is a useful warning:

company-defined capex can differ from a generic cash-flow-statement number.

Asset sales can change company-defined capex

Some companies present capital expenditures:

net of proceeds from asset dispositions

Others show gross additions and asset-sale proceeds separately.

Netting can make the reported capex number smaller.

For peer analysis, check whether the measure is:

gross
net
cash-paid
accrued

Acquisitions are not normally ordinary capex

Buying another company can require billions of dollars of cash.

That does not make the acquisition ordinary capital expenditures.

Acquisition cash is generally presented separately within investing activities.

A company can therefore show modest capex while still deploying enormous capital through acquisitions.

Capital allocation analysis needs both.

Leases can complicate comparisons

A company can obtain productive assets through:

purchase
finance lease
operating lease

A purchased asset can create capex.

A leased asset can create a right-of-use asset and lease liability with different cash-flow presentation.

Two companies using identical physical assets can therefore report different capex intensity.

Lease strategy matters.

Capitalized software and development can matter

Technology companies can capitalize some qualifying costs depending on the accounting facts.

That can shift spending from current operating expense toward a long-lived asset.

The business may look:

more profitable currently
more capital intensive

than a peer expensing more costs immediately.

Accounting policy can affect comparison.

Example

A company with $900 million of operating cash flow and $350 million of cash capital expenditures has $550 million of simple free cash flow before other adjustments.

Professional note

A useful capex review asks:

Definition: Is the figure cash-paid, accrued or company-adjusted?
Purpose: How much is maintenance versus growth?
Return: What ROIC or ROCE is the spending expected to earn?
Timing: Are large projects temporarily elevating capex?
Leases: Are assets being leased rather than purchased?
Cash: How much operating cash remains after the spending?

Capex is most useful when treated as investment that must earn an adequate return, not merely as a subtraction from free cash flow.

Related terms

Absolute Priority Rule
The Absolute Priority Rule is the Chapter 11 principle reflected in Bankruptcy Code Section 1129(b) that, in specified cramdown circumstances, prevents a junior class from receiving or retaining property on account of its junior claim or interest when a senior dissenting class is not paid in full.
Accounts Payable
**Accounts payable** are amounts owed to suppliers for goods or services a company has received but has not yet paid for. They are generally current liabilities and can function as a form of short-term operating financing because the company receives value before cash leaves.
Accounts Receivable
**Accounts receivable** are amounts owed by customers for goods or services a company has already provided but has not yet collected in cash. Companies usually report receivables net of allowances for expected credit losses, returns, discounts or other adjustments.
Accrued Expenses
Accrued expenses are costs a company has incurred but has not yet paid in cash. They are generally recorded as liabilities so expense recognition follows the economic period rather than the payment date.
Accumulated Other Comprehensive Income (AOCI)
Accumulated other comprehensive income is the cumulative equity balance of specified gains and losses recognized in other comprehensive income rather than ordinary net income.
Add-On Acquisition
An add-on acquisition is a company purchased by an existing portfolio company—often a platform company—to expand scale, geography, products, customers, capabilities or market share.

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