CAPEX

CAPEX (capital expenditures) is the money a company spends on buying, building or upgrading fixed assets, meaning things that will serve it for many years. In industry, this mainly includes:

• new production lines and process installations,
• machinery and equipment, such as reactors, mixers, pasteurisers and filling lines,
• upgrades to existing installations that increase capacity or quality, or extend their service life,
• buildings and infrastructure, such as a new production hall, boiler house or chiller,
• automation systems and software, such as SCADA or MES.

CAPEX covers not only the price of the equipment itself, but all the costs needed to get the investment up and running: design, transport, installation, piping, wiring, automation, acceptance tests and commissioning.

Why CAPEX matters

• It requires large sums at once, so the company has to plan a source of financing: its own funds, a loan, leasing or a grant.
• It is spread over time. In accounting, the value of the investment is not expensed immediately but is gradually allocated over the following years as depreciation.
• It affects future operating costs. Decisions made during the investment determine for years how much the plant will pay for energy, utilities and maintenance.
• It is assessed in terms of return. Before deciding, the company checks how long it will take for the investment to pay back, for example through higher output, lower costs or new products.

Example: A dog food manufacturer is planning a new dry food production line. Its CAPEX includes:

• an extruder, a dryer and a coating drum for coating the kibble with fat and flavourings,
• a raw material unloading and preparation station,
• piping, conveyors, control cabinets and wiring,
• design, installation, automation, acceptance tests and commissioning,
• a boiler house expansion, because the new line needs more steam.