Spending Phase

Companies have lifecycles. Sorta like people. And helmetless skateboarders.

In the early stages of building a company, lots of spending happens. Investors invest, funding whatever capital needs are prescient. In the case of Google, only about $15 million of capital was actually needed to have ended up producing a highly profitable, nearly trillion dollar value company. (Other financial rounds were raised, but the comapny really didn't tap into the extra capital.)

Uber and Tesla live at the opposite end of the spending phase, as they will have burned tens of billions of dollars before becoming profitable. It's all part of the natural growth curve. But if you do go into a business that needs a lot of capital...be sure to wear a helmet.

Related or Semi-related Video

Finance: What is Capital Expenditure, i....56 Views

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finance- a la shmoop. what is capex ?funny name kind of sounds like group therapy

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for men trying to quit wearing hats or maybe it's a Space Age head cover [men sit in a circle]

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Michael Phelps will wear on his comeback tour. sadly it's neither of those. capex

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is short for capital expenditure and it simply refers to the spending of capital

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to buy stuff. you know what an expenditure is ie an expense, for example

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when famed surgical glove manufacturer all you need is glove spends money on [man smiles in front of warehouse]

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synthetic rubber for its products, well, the buying of the gallons and gallons of

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rubber is an expense. they generally use that rubber within a short timeframe of

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when they bought it- a month a quarter certainly within the year. so the buckets

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of rubber they buy for their raw material are just a normal expenditure

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or expense. so what makes something a capital expense? well think about it like

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a petty crime versus a capital crime. in a petty crime the criminal will do time

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and be done and move on in life. a capital crime means someone was killed [man walks out of jail]

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whole different level of serious -versus that jaywalking thing -so when a capital

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expenditure comes around well its costs are taken or allocated or amortized over

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long periods of time like years or even decades. you know like a prison sentence.

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so when all you need is glove buys a new robotic rubber gloves machine so that [assembly line shown]

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they no longer have to sew the gloves by hand, that is a capital expense. why

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because it costs a lot of money 10 million bucks in fact ,and because they

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expect to be able to use that thing for 20 years before it wears out and is

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worthless. so they'll spend 10 million dollars in

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cash today of their capital to buy it and then reduce that value by 500 grand

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a year on their balance sheet each year for 20 years. the value of their capital [balance sheet shown]

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expenditure will slowly decline to nothing on their books but it will

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presumably more than pay for itself in saved costs applied to human labor in

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making the gloves. as for actually using the [robot holds up hand]

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however well it'll be a while until we can trust robots with that.

Find other enlightening terms in Shmoop Finance Genius Bar(f)