Since your likely in business, a Business professional, or a Entrepreneur who is researching to find more information about the meaning or differences between CAP EX and Maintenance Capital Expenditures? I have great news for you. I am willing to help answer this question for all you Google Searchers. Today’s lesson will be directly about a particular line on your Investing activities cash flow statement, Operating Expenses details, and Balance sheets.
So everybody if you have not yet taken basic Accounting classes? Your likely like me and studying as you go. It’s a ongoing challenge. However you have no excuse in todays online information super highway and access. So in the spirit of sharing cool new Accounting information I discover? And for the fact I find myself implementing this new knowledge in cool ways. Let’s talk about today’s latest topic I discovered while researching what is Intrinsic Value in Investing . Which by the way is an entirely different topic in it’s own right. Now on to the main event. Maintenance Capital Expenditures.
Did you catch my latest article about “Wealth management Trusts?”
What is this “Maintenance Capital Expenditures or CAP EX”?
You don’t need to be an Accountant or business superstar to run a small time Lemonade Stand in your neighborhood. So as you begin to sell lemonade? You will likely have cashflow on the balance sheet. This is where things become interesting.
Today we are talking about financials? I would love to detail what the line on your Financial Statement that say’s Maintenance Capital Expenditures.
When we look at a company’s cash flow statement which you should know “ENTREPRENEURS!” you will be looking for the line CAP EX or Maintenance Capital Expenditures.
Please don’t overcomplicate the info here. However when reading a Cash flow statement you will see a line called Capital Expenditures. It’s the exact same thing as a Maintenance Capital Expenditure. Cap Expenditures and Maintenance Capital Expenditures are the same thing. Often times I do see people who confuse CAP EX with Maintenance Capital Expenditures. Don’t let this confuse you. It’s the same.
Here are the two classifications that capital expenditures can fall under.
- Maintenance CapEx: Is the required ongoing expenditures of a company to continue operating in its current state (e.g., repair broken equipment, periodic system updates) Operating Expenses.
- Growth CapEx: Is the discretionary spending of a company related to new growth strategic plans to acquire more customers and increase geographic reach
According to a friend at a local Regional Law Firm and as TAX Attorney and Accountant,
An income statement reflects operating expenses incurred during a period of time.
Capex is considered a long-term investment, rather than an operating expense, because it has an economic life greater than a year (unlike operating expenses).
In conclusion in today’s lesson if you are running a Lemonade stand during the summer while teaching your kids the proper way to expense a business? I hope you would now clearly see? That Capital Expenditures and Maintenance Capital Expenditures are the same and they are for all the little things the business needs to operate and create free cash flow in the simplest of terms. Stay hungry, stay curious and be fearless when walking among Captains of Industry.