Capital expenditure
Also called Capex.
Cash spent on the physical assets the business runs on.
Reported on the cash flow statement, usually as purchases of property, plant and equipmentWhat it means
Capital expenditure is money spent on assets that will still be there next year: factories, servers, vehicles, fit-outs. It is not an expense on the income statement, because the asset has value beyond the period it was bought in, so it is charged gradually through depreciation instead.
That treatment is why capex has to be subtracted separately to reach free cash flow. Operating cash flow is measured after depreciation has been added back, so a business that spends heavily on equipment looks strong there and can be generating nothing at all once the spending is counted.
Worked example
Operating cash flow of $250m and purchases of property, plant and equipment of $80m.
- 1Capex is $80m.
- 2As a share of operating cash flow: 80 / 250 = 32%.
- 3As a share of revenue: 80 / 1,000 = 8%.
$80m of capital expenditure, leaving $170m of free cash flow.
Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.
How investors read it
- Compare it against depreciation. Spending consistently below depreciation means the asset base is shrinking, which flatters cash flow now and costs later.
- Capex as a share of revenue is roughly stable within an industry, so a sharp move is usually either a growth programme or a deferral worth asking about.
- Rising capex alongside rising returns is a company investing well. Rising capex with flat returns is a company buying growth it is not earning.
Where it misleads
- Maintenance and growth capex are rarely split, so you cannot easily tell what is keeping the lights on from what is expansion.
- Acquisitions are not capex, and treating them as equivalent understates what a serial acquirer spends to grow.
- Companies that lease rather than buy show less capex for the same operations, which is an accounting difference rather than a real one.
How Materiality uses it
Subtracted from operating cash flow to produce the free cash flow figure that feeds both the scorecard's Growth category and the starting point of the intrinsic value model. It is carried as a statement line in the Financials tab and is not otherwise adjusted.
The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.
Work it out yourself
Related metrics
A metric on its own is a number without a business attached to it. Materialitycomputes these from a company's own SEC filings, several years of them at once, and explains what the pattern means rather than leaving you to hold fifteen definitions in your head.