Understanding Capital Expenditures and Its Calculation

Capital expenditure (CapEx) is a common term for many businesses and real estate investors. Understanding CapEx and how it’s calculated is important for knowing how much rent to charge each month to ensure long-term profitability. It can help you prepare for future maintenance expenses, and it’s also used by lenders when evaluating your business for a loan.

What Is Capital Expenditure?

Capital expenditure refers to money used by businesses to buy, upgrade, and maintain long-term physical assets. Also called fixed assets, these are items that businesses expect will improve their future cash flow.

A capital expenditure project could include buying a rental property or adding a new roof to an existing home. Another term for long-term or fixed assets is capital assets.

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