What is a Capital Expenditure?

March 12, 20236 min read
What is a Capital Expenditure?
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Any payment made, or debt assumed, to acquire, upgrade, or maintain long-term assets essential to the operation of a business is referred to as a capital expenditure (CapEx).
  • A key difference between a CapEx and an operating expenditure (OpEx) is the amount of time the benefit of the expense is expected to last.
  • Given the ability of capital expenditures to contribute to a company’s growth potential, investors can use CapEx as a measure of a company’s management team’s growth expectations.

Any payment made to acquire, upgrade, or maintain long-term assets essential to the operation of a business is referred to as a capital expenditure (CapEx). The disbursement can be in the form of cash or debt taken on to invest in assets such as property, plants, buildings, technology, or equipment.

Such expenditures benefit the company beyond a single fiscal year and are essential to the functioning, as well as the growth of a business. These outlays are recorded on the balance sheet of a company, as opposed to appearing as an expense on its income statement.

Given the ability of capital expenditures to contribute to a company’s growth potential, investors can use CapEx as a measure of a company’s management team’s growth expectations.

Capital Expenditure vs. Operating Expenditure

One difference between a CapEx and an operating expenditure (OpEx) is the amount of time the benefit of the expense is expected to last.

A CapEx is looked upon as a one-time outlay impacting a long-term asset, because the benefit of the investment is expected to last more than one year. As an example, the purchase of a building to house a new business division is considered a capital expense, because the benefit of that expenditure is anticipated to be ongoing.

Conversely, a payment made to acquire supplies such as printer ink, paper, staples or the like is referred to as an operating expenditure (OpEx). These sorts of items must typically be purchased frequently, so the benefit of such an outlay is expected to last less than one year. As a result, these costs appear on a company’s income statement, in the form of operating expenses.

Types of Capital Expenditures

A wide variety of asset acquisitions can generate long-term value for a company.

Among them are buildings, land, equipment, computers or servers, furniture, vehicles and patents, as well as licenses. Other types of investments considered CapEx include costs associated with upgrading an existing asset, renovating an obsolete or non-functioning asset, adapting an asset for a different use, or starting or buying a new business division.

Expenditures in each of these areas hold the potential to contribute to the long-term growth of the company. One exception however, is a cost incurred to maintain an asset in its current condition, such as a repair that keeps an asset in good working order, but does not change or improve the nature of its functioning.

This outlay would be recorded as an OpEx.

Calculating a Capital Expenditure

A CapEx can often be found on a company’s cash flow statement under the heading of investing activities.

A CapEx can also be calculated, based upon key pieces of data found on a company’s income statements and balance sheets. Balance sheets should list the firm’s current property, plant and equipment (PP&E) line item balance. Income statements should list the amount of depreciation expense the organization noted for the current period.

Determining the difference between a prior PP&E balance and the current one will reveal the change in the balance. Adding the change to the current-period’s depreciation listed on the income statement will give the current CapEx spending for the company.

The basic formula is:

CapEx = ΔPP&E + Current Depreciation

Where the variables are defined as:

CapEx = Capital expenditures
ΔPP&E = Change in value of property, plant, and equipment​

Capital Expenditure Example

Say a company has assets totaling $701 billion and PP&E totaling $158 billion—net of accumulated depreciation. Say also, the company’s balance sheet aggregates all PP&E into a single line.

Checking the supplementary information section of the balance sheet, it is revealed that the company’s gross PP&E is $218 billion, of which some $158 billion is comprised of facilities, equipment and patents. The notes also explain the PP&E balance is diminished by the balance of accumulated depreciation totaling $140.6 billion.

Thus, $140.6 billion of the $218 billion in CapEx is utilized.

This means the book value of its CapEx is roughly $77 billion.

The Value of CapEx to Investors

Calculating a company’s CapEx will tell investors how much the company invests in the growth of the business. Given the size of a typical capital expenditure, approval from the board of directors or shareholders is generally required before they are made.

This gives investors some insight into the way the company is being managed. Is the company growth oriented? What kind of future does its management team anticipate and what are they doing to help position the company to get there? As an example, upgrading fixed assets such as machinery or acquiring an office building can help accelerate the growth of the company and firm up its potential to operate effectively on a larger scale.

This company is likely poised for growth, which means it could hold the potential to be a positive addition to an investment portfolio. Or, in the case of a startup or a venture capital opportunity, capital expenditures of this nature could indicate the company is a good alternative investment with which to diversify a portfolio.

Rise above Volatility

Diversify beyond the stock market with Yieldstreet.

Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

A capital expenditure is a payment made or debt taken on to improve business operations. Such outlays are recorded on a company’s balance sheet. Examples include the acquisition of land, vehicles, buildings, or heavy machinery.

Capital expenditures are usually made to initiate new projects or enhance the company’s ability to operate at scale. With this in mind, evaluating a company’s CapEx can provide investors with some insight to a management team’s long-term expectations.

All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments. It should be understood that these risks are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices and carry additional risk of loss. This includes the possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments. Further, these investments are generally considered to be illiquid, due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure