Capex (capital expenditure) meaning in simple words
Capex: (capital expenditure) is money a company spends on things that will serve it for years, like new kiosks, vans or machines.
The story
two people, one chai stall
FY26 is closed. Sameer has spotted that the bank balance went down.
SameerWe made ₹9 crore of profit, but cash fell from ₹63 crore to ₹55 crore. Where did it go?
RiyaMostly into capex, short for capital expenditure. ₹15 crore on 15 new kiosks and a van fleet.
SameerIsn't that just spending?
RiyaIt's spending on things that last for years. So it doesn't hit profit in one go. It sits on the balance sheet as assets and comes back as depreciation, a slice each year.
SameerAnd the gas bill?
RiyaThat's used up in a month. Normal expense, straight into the profit and loss.
SameerSo were we reckless?
RiyaThe business brought in ₹14 crore of cash. We spent ₹15 crore on capex. That's free cash flow of minus ₹1 crore. We spent a bit more than we earned, to grow.
SameerAnd the gap?
RiyaIt came out of the cash we already had. Now investors will watch whether those 15 kiosks earn it back.
The grown-up version
same idea, exact words
Capital expenditure is spending to buy, build or improve long-lived assets such as property, plant and equipment or intangible assets. Under Ind AS 16, such cost is recognised as an asset when future economic benefits are probable and the cost can be measured reliably, and it is then depreciated over the asset's useful life. In the statement of cash flows it appears under investing activities, which Ind AS 7 defines as the acquisition and disposal of long-term assets and other investments. 'Capex' itself is not a defined term in Indian law; reports usually show it as purchase of property, plant and equipment and intangible assets.
Formula
Free cash flow = Cash from operations − Capex
Which rule asks for itInd AS 16, Property, Plant and Equipment (recognising the asset); Ind AS 7, Statement of Cash Flows (investing activities).
Spot it in the wild
a real annual report, a real page
- HUL's capex on factories and machines in FY26: ₹1,171 crore.
- The cash its business brought in: ₹10,496 crore. Capex used about a ninth of it.
Don't mix it up
the usual confusions
Capex ≠ opex
Operating expenses, like milk, gas and salaries, are used up within the year and go straight into the P&L. Capex buys things that last.
Capex ≠ depreciation
Capex is the cash out the door when you buy the van. Depreciation is that cost, charged to profit a slice at a time over the van's life.
Capex ≠ capital work-in-progress
Capex on something not ready yet, like a half-built factory, sits in capital work-in-progress. Depreciation starts only when it's ready for use.
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