Capital expenditure

Published Thursday 6 August 2026

Table of contents

• What is capital expenditure (capex)?
• Why capital expenditure matters
• Types of capital expenditure
• Examples of capital expenditure
• How to calculate capex
• Where to find capex in your financial statements
• Capex vs opex
• Capex vs revenue expenditure
• Challenges of capital expenditure
• Plan your capital expenditure with Xero
• FAQs on capital expenditure
• Related terms
• Learn more about capital expenditure

Key takeaways

• Capital expenditure (capex) is money spent to buy or upgrade long-term assets like property, equipment or vehicles that your business uses over multiple years.
• Capex appears on your balance sheet as property, plant and equipment and is depreciated over the asset's useful life rather than expensed immediately.
• You can calculate capex using the formula: change in property, plant and equipment plus depreciation for the period.
• Capex differs from operating expenditure (opex), which covers day-to-day running costs, and from revenue expenditure, which is fully expensed in the current period.

What is capital expenditure (capex)?

Capital expenditure is money spent to acquire or upgrade a long-term asset such as land, equipment or a building. It's also known as capex.

Your business uses these assets to generate income over several years. Because the benefit extends beyond a single accounting period, capex is recorded differently from everyday expenses. You add it to your balance sheet and spread the cost over the asset's useful life through depreciation.

Why capital expenditure matters

Capex decisions shape the long-term direction of your business. The assets you buy today, whether a delivery vehicle, a fit-out for new premises or specialised equipment, determine your capacity to serve customers and grow revenue in the years ahead.

Careful capex planning helps you time purchases around cash flow, arrange appropriate funding and avoid overcommitting resources. Understanding capex also makes it easier to communicate with lenders, investors and accountants who assess your financial statements.

Types of capital expenditure

Capex generally falls into the following categories:

• Maintenance capex: spending needed to keep existing fixed assets running, such as replacing an ageing warehouse forklift
• Growth capex: discretionary spending that expands capacity, such as buying additional forklifts for a larger warehouse
• Research and development (R&D): investment in new products, processes or services before they generate revenue
• Intellectual property: costs to acquire or create patents, copyrights or trademarks that benefit the business over time

Examples of capital expenditure

Common capex items for small businesses include:

• Property such as land and buildings
• Fit-outs including furniture and infrastructure upgrades
• Equipment, vehicles and work tools like computers
• Research and development (R&D)
• Intellectual property such as patents and copyrights
• Buying a new business

How to calculate capex

You can work out capital expenditure using the formula: capital expenditure equals the change in property, plant and equipment (PP&E) over the period plus depreciation for the period.

1. Find the PP&E balance at the start of the period on your balance sheet.
2. Find the PP&E balance at the end of the period.
3. Subtract the starting balance from the ending balance to get the change in PP&E.
4. Locate the depreciation expense for the period in your profit and loss statement or notes.
5. Add the change in PP&E to the depreciation expense.

For example, if PP&E rises from HK$200,000 to HK$250,000 over the year and you record HK$30,000 in depreciation, your capex for the period is HK$50,000 plus HK$30,000, which equals HK$80,000.

Where to find capex in your financial statements

Capex appears on the balance sheet under assets as property, plant and equipment (PP&E). It is not recorded on the profit and loss statement at the time of purchase because it provides value over multiple periods.

Instead, the cost is depreciated over the asset's useful life, with the depreciation expense appearing in your profit and loss each period. You can also track capex on the cash flow statement, where purchases of PP&E show as outflows under investing activities.

Capex vs opex

Capital expenditure buys assets your business uses to generate income over a long period. Operating expenditure (opex), on the other hand, covers day-to-day running costs that keep your business functioning.

Examples of opex include payroll, utilities, insurance, marketing and materials. Opex is fully expensed in the period it occurs, while capex is capitalised and depreciated over time.

Capex vs revenue expenditure

Revenue expenditure refers to short-term spending that maintains your current operations and is fully expensed in the period it occurs. Examples include routine repairs, maintenance contracts and restocking inventory.

Capex, by contrast, involves acquiring or improving long-term assets. Those costs are capitalised on the balance sheet and depreciated over the asset's useful life rather than being written off immediately.

Challenges of capital expenditure

Capex decisions can be difficult for small businesses. They typically require a large upfront outlay that ties up cash. Once made, they can be hard to reverse because selling specialised equipment or property often recovers only part of the original cost. Capex also depends on forecasting future returns, which involves uncertainty about demand, technology changes and market conditions.

Plan your capital expenditure with Xero

Tracking your assets and cash flow in one place makes it easier to plan capex with confidence. Xero's reporting tools give you a clear view of your finances so you can time purchases, manage depreciation and stay on top of your PP&E. Try Xero and get one month free.

FAQs on capital expenditure

Here are answers to common questions about capex.

What does capex stand for?

Capex is short for capital expenditure. It refers to money spent on long-term assets that your business uses over multiple accounting periods.

How do you calculate net capital expenditure?

Net capital expenditure is total capex minus proceeds from selling old assets during the period. It shows how much you invested after accounting for asset disposals.

Where do you find capital expenditure in the financial statements?

Capex sits on the balance sheet as PP&E and appears as an outflow under investing activities on the cash flow statement. It is not directly shown as an expense on the profit and loss statement.

Does capital expenditure affect profit?

Capex does not reduce profit when you make the purchase. Instead, profit is affected gradually through depreciation expenses recorded over the asset's useful life.

Is capital expenditure tax deductible in Hong Kong?

Capex is generally not immediately deductible. However, certain assets may qualify for depreciation allowances or capital allowances under the Inland Revenue Ordinance. Speak to an accountant or tax adviser for guidance specific to your situation.

Related terms

• Assets
• Operating expense
• Opex vs capex
• Capital

Learn more about capital expenditure

• Cash flow projection guide
• Profitability ratios guide
• Financial reporting software