Capital expenditure (capex)

Published Monday 17 August 2026

Table of contents

• What is capital expenditure?
• Capex vs opex: what's the difference?
• Examples of capital expenditure
• Types of capital expenditure
• The capex formula and how to calculate it
• How capex affects your financial statements
• Capex and tax in the Philippines
• Why capital expenditure matters
• Manage your capital expenditure with Xero
• FAQs on capital expenditure
• Related terms
• Learn more about capital expenditure

Key takeaways

• Capital expenditure is money spent on long-term assets like property, equipment and vehicles that benefit your business for more than one year.
• Capex is recorded as an asset on the balance sheet and its cost is gradually deducted through depreciation, unlike operating expenses which are deducted in full in the year incurred.
• Understanding the difference between maintenance capex and growth capex helps you plan spending that keeps the business running versus spending that expands capacity.
• Tracking capex accurately gives you a clearer picture of cash flow and helps you make informed decisions about future investments.

What is capital expenditure?

Capital expenditure is money spent to acquire, upgrade or maintain a long-term asset such as land, equipment or a building that benefits your business for more than one year. It is also called capex.

Capex is recorded on the balance sheet as an asset, often under property, plant and equipment (PP&E). Its cost is then depreciated over the asset's useful life, spreading the expense across multiple accounting periods. This treatment is the opposite of operating expenditure (opex), which is recorded as an expense in full when incurred.

Capex vs opex: what's the difference?

Capex and opex represent two different types of business spending. Capex covers long-term assets used to generate revenue over many years. Opex covers the day-to-day running costs that keep your business operating, such as payroll, utilities, insurance, marketing, materials and overheads.

• Time horizon: capex benefits the business for more than one year, while opex is consumed within the current period.
• Accounting treatment: capex is capitalised on the balance sheet and depreciated over time, while opex is recorded as an expense immediately.
• Tax treatment: capex is deducted gradually through depreciation, while opex is fully deductible in the year incurred.
• Financial statement impact: capex appears as an asset and affects the balance sheet first, while opex reduces profit directly on the income statement.

Examples of capital expenditure

Many business purchases qualify as capital expenditure if they provide value for more than one year. Common examples include:

• property such as land and buildings
• fit-outs such as furniture and infrastructure
• equipment, vehicles and work tools like computers
• research and development (R&D)
• intellectual property such as patents and copyrights
• buying a new business

Types of capital expenditure

Capital expenditure falls into two main categories based on the purpose of the spending. Recognising the difference helps you budget for necessary costs versus discretionary investments, especially when managing start up costs or planning for growth.

Maintenance capex is spending to replace assets and maintain current revenue or profit. It is a necessary expense that keeps operations running. An example is replacing an old warehouse forklift that has reached the end of its useful life.

Growth capex is spending to expand revenue, increase capacity or enter new markets. It is discretionary and tied to strategic plans. An example is buying additional forklifts to equip a larger warehouse.

Capex can also be classified as tangible or intangible. Tangible capex includes physical assets like property, equipment and vehicles. Intangible capex includes non-physical assets like patents, software and copyrights.

The capex formula and how to calculate it

You can calculate net capital expenditure using figures from your balance sheet and income statement. The Corporate Finance Institute defines the formula as:

Net capex = current PP&E − previous PP&E + depreciation for the period

For example, suppose your PP&E rose from ₱2,000,000 to ₱2,600,000 over the year and depreciation for the year was ₱300,000. Your net capex would be ₱2,600,000 − ₱2,000,000 + ₱300,000 = ₱900,000.

How capex affects your financial statements

Capital expenditure flows through your financial reports differently from day-to-day expenses.

• Balance sheet: capex is recorded as an asset under property, plant and equipment.
• Income statement: its cost reaches profit gradually through depreciation, not all at once.
• Cash flow statement: capex appears under investing activities, showing the cash spent on long-term assets.

Capex and tax in the Philippines

In the Philippines, you generally cannot deduct the full cost of a capital asset in the year you buy it. Instead, you claim depreciation over the asset's useful life, spreading the tax benefit across multiple years.

According to PwC's Philippine tax summary, depreciation is generally computed on a straight-line basis, though other methods may be acceptable. Tax rules and allowable useful lives can change, so check the current Bureau of Internal Revenue (BIR) guidelines or consult your accountant for specific advice.

Why capital expenditure matters

Capital expenditure represents a long-term investment in your business's capacity and growth. Understanding capex helps you plan for the future and allocate resources wisely. A detailed cash flow forecast can help you prepare for large purchases.

• Long-term value: capex builds assets that generate revenue for years.
• Large upfront cost: capital purchases require significant cash outlay, which can strain liquidity.
• Difficult to reverse: once you buy an asset, selling it may result in a loss.
• Uncertain returns: forecasting the exact benefit of a capital investment is challenging.

Manage your capital expenditure with Xero

Tracking fixed assets, depreciation and cash flow is easier when your accounting software gives you a clear view of your finances. Xero's fixed assets management software helps you record purchases, calculate depreciation automatically and see how capex affects your reports. Ready to take control of your business finances? You can get one month free and see how Xero works for you.

FAQs on capital expenditure

Here are answers to common questions about capital expenditure.

Is capital expenditure an asset or an expense?

Capital expenditure is recorded as an asset first, then becomes an expense over time as it is depreciated. This treatment reflects the long-term benefit the asset provides.

How do you calculate capital expenditure?

Net capex = current PP&E − previous PP&E + depreciation for the period. You can find PP&E on the balance sheet and depreciation on the income statement.

Is capital expenditure tax-deductible?

You cannot deduct the full cost of a capital asset in one year. Instead, you deduct it over time through depreciation.

Is software capex or opex?

It depends on how you acquire it. Software bought outright and used for more than one year is usually capex. Software subscriptions paid monthly or annually are usually opex.

Where does capital expenditure appear on financial statements?

Capex appears under investing activities on the cash flow statement. It is also recorded as an asset on the balance sheet under property, plant and equipment.

Related terms

• Assets
• Fixed assets
• Balance sheet
• Cash flow

Learn more about capital expenditure

• Depreciation
• Accumulated depreciation
• Financial statements
• Managing cash flow