What are capital expenditures?

Capital expenditures, often referred to as CapEx, are funds allocated to acquire, upgrade, or maintain physical assets such as property, buildings, machinery, and equipment. This type of investment is crucial for a business as it contributes to the long-term growth and efficiency of operations. By making these investments, a business can improve its capacity to generate revenue or reduce operating costs over time.

In contrast, daily operational expenses represent ongoing costs necessary to run the business, marketing initiatives focus on promoting the business, and short-term investments in stocks are typically associated with managing cash flow rather than acquiring physical assets. Thus, the definition of capital expenditures is accurately captured by the choice related to funds used for acquiring or upgrading physical assets.