Capital expenditures are purchases made by a company to buy or maintain an asset. Or, if you're talking specifically accounting, the money they spent buying or maintain the asset.
The whole buying vs. repairing thing comes in with accounting. Say you're buying an asset (a building for storage, for example), the cost needs to be spread out over the useful life of the asset. On the other hand, if you're repairing a roof on a building you already own, you can deduct that expense right away. This relates back to the estimated value and life of the asset (because it will count on the books as an asset after purchase).
Businesses have varying amounts of capital expenditures, but the figure can be viewed as a ratio. Generally, you can divide the cash flow by the capital expenditure and use that number as a gauge. A high ratio means the company is funding their capital expenditures (their purchases) with funds generated from their business. A low one though means they might not be funding their purchases with cash flows, and they might be borrowing to buy things.
There's no rule against that (businesses are allowed to have loans) but if it gets too out of whack the business could be headed for more debt than it can handle...and potential bankruptcy.
Related or Semi-related Video
Finance: What is working capital?268 Views
finance a la shmoop. what is working capital? alright people say we're opening
a lemonade stand. I seed what you did there. unfortunately we can't just blink [man stands in front of stage]
our eyes like Aladdin's genie and you know make it all happen. magically we
don't need a ton of money to start things but we need some money in advance. [genie comes out of lamp]
of you know when we begin collecting revenues well we have to rent a location,
and pay six months rent in advance, and we got to buy about 87 pounds of
sugar and 4,000 lemons and hundred fourteen huge bottles of purified water,
oh and cups we need eight thousand cups. all told it costs about 50 grand in
capital, working capital. see we did there, we need before we can start to run the
business, and you know pay employees and so on .so we get an investor TBOG. the [people stand in line for lemonade]
bank of Grandma. yeah we love her. she gives us a hundred grand. well that
entire hundred grand invested into our little business is our total working
capital. right? fifty grand and start the business working and we got 50 left over
or just in case things don't start up as quick as we hope .its capital that lets
us start working. in cleverly named there. all right well 50 grand we know we're
gonna spend 50 grand and cover the time in between when we're up and running and [calendar]
revenues and all the other stuff start to kick in. and well yeah it's that
simple. put together an actual drinkable lemonade recipe ?well that's just a
little bit harder. working capital. live it love it breathe it. [ grandma grimaces]
Up Next
What is collateral? Any type of asset or property that a borrower pledges as security for a loan is classified as collateral. As the lender has a c...
What is a Current Asset? A current asset is any asset a company has that could be sold for cash value within a year if it were to be liquidated. It...
What is a Hard Asset? A hard asset is a specific type of asset listed on a company’s balance sheet. It is an actual physical piece of property th...