Difference Between Capex and Opex

Capex is known as capital expenditure, whereas Opex is the operational expenditure.

What is Capex?

Capital expenditureCapital ExpenditureCapex or Capital Expenditure is the expense of the company’s total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more occurs when the company acquires new assets or adds some value to the existing ones, which would be useful beyond the current financial year.

  • Capex or expenses are depreciated or amortized over the years. For example, it can buy equipment/ buildings or add value to an existing asset to upgrade beyond the current financial year.Once the asset is put to use, it depreciates over a period to spread the asset’s cost over its useful span of life. Every year, a part of the asset is put to use.Depreciation is the amount of depletion on the fixed asset, and the amount of depreciation that happens each year is used as a tax deduction.Capital expenses are mostly depreciated over a five to ten years period but sometimes may be depreciated over twenty years in the case of real estate properties.Capital expenditure is therefore used for future benefits like the company’s growth.

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What is Opex?

Opex refers to those expenses that a business has to incur to run its daily operations. For example, the employees’ wages, leases, maintenance and repair cost, etc.

  • OpexOpexOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more is entirely tax-deductible. Therefore it is more attractive for a company to lease an item and assign its cost to operating expenses rather than purchase it.It can be a financially attractive option for the company if it has limited cash flow.

Capex vs. Opex Infographics

Let’s see the top differences between Capex vs. Opex.

Key Differences

The critical difference lies in treating these expenditures in an income statementAn Income StatementThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read more.

However, tax-deductible is not always the sole purpose for all companies. If a company wants to increase its earnings, it may opt for capital expenditure instead and only subtract a small part of it as an expense over the years. It will amount to a higher value of assets on its balance sheet and an increase in net income that it can show to the investors. It will eventually increase the company’s valuation and its stock price.

Capex vs. Opex Comparative Table

Conclusion

Capital expenditures are essential purchases that will be utilized in the future. The lifespan of these purchases goes beyond the current financial period in which the assets are purchased. These costs can only be recovered over some time through depreciation or amortization, depending on whether Capex is a tangible or intangible assetIntangible AssetIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can’t touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more.

Opex is a short-term cost, and the expenses are fully tax-deductible. On the other hand, the operating expenditures represent the daily expenses necessary to keep the business going. Opex can be fully deducted in the same accounting period in which the items are purchased.

This article has been a guide to Capex vs. Opex. Here we discuss the top difference between Capex and Opex, infographics, and a comparison table. You may also have a look at the following articles –

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