CAPEX and OPEX Budget Planning.

 CAPEX:-  CAPEX represents the company’s spending cost on physical assets.

Capital expenditures are purchases of significant goods or services that will be used to improve a company’s performance in the future. Capital expenditures are typically for fixed assets like property, plant, and equipment (PP&E). For example, if an oil company buys a new drilling rig, the transaction would be a capital expenditure.

The following are common examples of capital expenditures:

• Manufacturing plants, equipment, and machinery
• Building improvements
• Computers
• Vehicles and trucks

CAPEX is also listed in the investing activities section of the cash flow statement.

OPEX: -

OPEX represents the company's spending cost for running day-to-day operations. These expenses must be ordinary and customary costs for the industry in which the company operates. Companies report OPEX on their income statements and can deduct OPEX from their taxes for the year in which the expenses were incurred. The following are common examples of operating expenses:

• Rent and utilities
• Wages and salaries
• Accounting and legal fees
• Overhead costs such as Selling, General, and Administrative Expenses (SG&A)
• Property taxes
• Business travel
• Interest paid on debt

Key Differences: -

Capital expenditures are major purchases that will be used beyond the current accounting period in which they’re purchased. Operating expenses represent the day-to-day expenses designed to keep a company running. Because of their different attributes, each is handled in a separate manner.

If a company chooses to lease a piece of equipment instead of purchasing it as a capital expenditure, the lease cost would be classified as an operating expense.

KEY TAKEAWAYS:-

• Examples of CAPEX include physical assets, such as buildings, equipment, machinery, and vehicles. 
• Examples of OPEX include employee salaries, rent, utilities, property taxes, and cost of goods sold (COGS).
• Capital expenditures cannot be deducted from income for tax purposes while operating expenses can be deducted from taxes.