CapEx vs OpEx explanation

[@TheFinanceStoryteller]

Enjoyed the video? Then please subscribe to my channel, and watch the videos on depreciation kzbin.info/www/bejne/bIS8aaZnlLR4qNE and intangible assets kzbin.info/www/bejne/Y4Xdknpji6llfbc

[@cloudmahenderdaily4573]

The money which we spent to impress a girl is CAPex and once she impressed then taking her to cofee shop once in a while is opex

[@sangitasingh8040]

Lol

[@crispy_reddit]

Only if the useful life is more than one year.

[@alfikriramadhan2078]

In industrial example, Capex is the expenditure you required to build the plant (i.e the equipments, buildings, plot of land, etc.), while opex is the expenditure you required to operate the plant (supply, material, utilities, employees salary, etc.)

[@TheFinanceStoryteller]

Nice summary, Alfikri!

[@MOAMA82]

How couldn’t I discover this channel earlier, dead simple and easy to understand accounting concepts.

[@TheFinanceStoryteller]

Thanks for the compliment! I might quote you on that! ;-) Enjoy watching.

[@MOAMA82]

The Finance Storyteller it'd be an honor.

[@cnmg7121]

brilliant video, it helped me a lot. subscribed. Using the same example as before, if the roof for the building is CapEx, window cleaning for that same building would be OpEx. If the purchase + installation of a lift is CapEx, the service and maintenance of that lift is OpEx. Buying a Car is CapEx; servicing, tax, MOT, insurance and petrol are OpEx.

[@TheFinanceStoryteller]

Thanks for watching and subscribing! You are spot on with your examples!!! :-)

[@konstancyja82]

I love the videos, very short and easy understand explanation, which you can check while listening to the negotiating partner and not understanding what he is talking about!

[@hiskevanharen3337]

Again an excellent video of the Finance Storyteller. Clearly explaining the difference between Capex and Opex which is a hot topic at the moment.

[@TheFinanceStoryteller]

Thank you for the kind words! Good to hear the video is relevant and useful. :-)

[@Canomerblc]

I really learned a lot about finance world, and believe me you are not telling stories, you are providing a great info

[@TheFinanceStoryteller]

Thanks for the compliments, Sedat! Much appreciated. Please share the word to friends and colleagues. :-)

[@jjabrans570]

Love the simple, straightforward explanation. The pace of the speaker is also just right. In other videos I've seen, the speaker either talks too fast or too slow.

[@TheFinanceStoryteller]

Thank you, JJ! :-) Wonderful to hear that. Welcome to the channel! Please subscribe. Some more CapEx / P&E related information in my Walmart case study of how to read a balance sheet: kzbin.info/www/bejne/m3rNdJSbg9JgjM0

[@joselitohernandez3804]

This channel deserves a million subscribers. Thank you so much for your content 🙂

[@TheFinanceStoryteller]

Thank you so much 😀 I agree!

[@inventgroupPL]

The best explanation of topic in whole KZbin!

[@TheFinanceStoryteller]

I agree! 😉

[@eyeofpiston6977]

Shopping with wife is CAPEX and shopping with gf is OPEX

[@abdelhadiredouane4973]

Hahahah

[@21011364]

jaaaaaaaaajajajajajajaj

[@rww287]

Anjirrrr

[@adityajha8423]

I think its the reverse you do capital expenditure on your gf and then when she becomes your wife its the operating expenditure

[@env_d_ak]

Shopping with ex gf - oopsex.

[@bonnyfok4476]

I learn a lot of investment skills from you. the videos are very easy to understand. keep up the good work. support!

[@TheFinanceStoryteller]

Thank you, Bonny! Good to hear. :-)

[@jamesperry3837]

*Love the graphics.* _Thanks for the very useful explanation._

[@TheFinanceStoryteller]

You're welcome! :-)

[@Hotrod_haji]

Solid review. Brief and very helpful!!!!

[@TheFinanceStoryteller]

Thank you, Alex! Please spread the word. ;-) I have a related video about depreciation which might also help to broaden the understanding: kzbin.info/www/bejne/bIS8aaZnlLR4qNE

[@Suyash_Bajpai]

You sound so humble, nicely explained!

[@TheFinanceStoryteller]

Thank you! Happy to help.

[@TheMiguel199]

Amazing video, I am happy that I found your channel and will continue to learn from you. Thank you!

[@TheFinanceStoryteller]

Happy to hear that, Don!

[@kennethbeard5553]

Some easy examples for people to identify with are purchasing a house or a car. Buying them initially is Capex (price of house or mortgage loan and the price of the car) but running them (house maintenance, utilities etc for the home or fuel, maintenance, repairs for the car) is Opex. Except that in most countries individuals are not allowed to treat this like a company for tax purposes.

[@TheFinanceStoryteller]

Excellent example, thank you! That's something that a lot of people can relate to.

[@TheFinanceStoryteller]

To build on that: "owning a car". Did you buy it (asset) and get a loan to finance it (liability), or did you purchase it in cash (debit P&E, credit cash).

[@sureshkashyap8549]

This is awesome! Keep this videos coming! Clearly explaining the difference between Capex and Opex which is a hot topic at the moment.

[@TheFinanceStoryteller]

Thank you for the feedback! I might make more videos on related topics. My video on intangible assets has some discussion on capitalizing (part of) R&D: kzbin.info/www/bejne/Y4Xdknpji6llfbc

[@locekamado1716]

Good Explanation and easy to understand for non finance people

[@TheFinanceStoryteller]

Thank you for the feedback! That's what I was aiming for. :-)

[@faisalaljurayyed9425]

thanks a million your videos are Capex i hope you keep investing

[@TheFinanceStoryteller]

Thank you, Faisal! That is a wonderful compliment.

[@Mshev07]

This is awesome! Keep this videos coming! Could you make quarterly results analysis from the big companies?

[@TheFinanceStoryteller]

Thanks for the compliment, Marcel! Please spread the word about my videos. :-) Yes, doing some quarterly results analysis could be a good next step. I am thinking about doing a live stream around quarterly results, very likely Q2.

[@antonioromero878]

Great content as always ! 👏

[@TheFinanceStoryteller]

Glad you enjoyed it, Anthony!

[@orugapeluda593]

CapEx in the installation of wellhead platforms: ships, cranes, a power source. OpEx: Maintenance and regular workers.

[@TheFinanceStoryteller]

Excellent examples! Thank you for sharing.

[@ankitasaxena6170]

Why is this content free? Subscribed already!

[@TheFinanceStoryteller]

Thank you, Ankita! You can buy me a cup of tea through this link ;-) kzbin.info/door/QQJnyU8fALcOqqpyyIN4sgjoin

[@CenfJ]

Great work man ❤

[@TheFinanceStoryteller]

Thank you so much 😀

[@EZ5965]

simple , sencillo y claro ! gracias

[@TheFinanceStoryteller]

Hola Elena! De nada. :-)

[@cristinasanchez3327]

Thank you so much for this!!!!!

[@TheFinanceStoryteller]

You're so welcome, Cristina! 🙂

[@nicolassuarezblog]

very well explained. thank you so much for sharing

[@TheFinanceStoryteller]

You're welcome! CapEx vs OpEx is a topic that has confused many non-finance managers. "What, I have TWO budgets for my spending?" ;-)

[@nicolassuarezblog]

@@TheFinanceStoryteller thanks for the reply, the video shows an interesting view for capex vs opex. This was a doubt that I had been doing for quite some time, in the calculation of Free Cash Flow, and subtracting CAPEX from EBITDA, in the case of growing companies, take into account the maintenance Capex (opex) or also the growth capex (capex) . In case of using the latter (capex) FCF is usually negative and has no usefull, using only OPEX can give you an idea of FCF generated by the company without taking into account the investment in growth. Or, maybe in these companies growth is advisable for using other methods of valuation, estimating conservative growth in the future and future valuation, is diferent for a mature company, where you search the today value and safety margin, regards

[@TheFinanceStoryteller]

@@nicolassuarezblog This is the way I see it: 1) If you generate revenue (as a company), that doesn't necessarily mean you make a profit. 2) If you do make a profit, it doesn't necessarily mean you have a positive CFOA (Cash From Operating Activities). 3) If you do generate a positive CFOA, it doesn't mean you can take money out of the company as the owner/shareholder through a dividend, as the positive cash inflow from CFOA may have to be reinvested in the company through CapEx (Free Cash Flow zero or negative). 4) If Free Cash Flow is positive, you have "graduated" ;-)

[@johnshoulders6586]

In a "Rent vs Buy" Cast Study - is the rental of large equipment on a regular basis considered Opex?

[@TheFinanceStoryteller]

Hello John! In the past, I would have said yes. But since the adoption of the new lease accounting standard (ASC842 in US GAAP, IFRS 16 in IFRS) I am not completely sure. Operating lease right-of-use assets as well as finance lease right-of-use assets (and their related liabilities) are now on the balance sheet, rather than off balance sheet.

[@リンゴ酢-b8g]

To summarize, CapEx requires significant up-front financial costs, as well as ongoing maintenance and support expenditures. By contrast, OpEx is a consumption-based model

[@TheFinanceStoryteller]

I would substitute "financial costs" by "investment" in that sentence, but other than that it captures the spirit pretty well.

[@firasajeel968]

Why most of the companies are shifting their Business Model from CAPEX to OPEX ? Could you please share a short video for that purpose ?

[@TheFinanceStoryteller]

I think that mostly has to do with companies wanting to maximize their returns on metrics such as ROIC, ROA, ROTC, ROCE, etc. The numerator is a variation on profitability, the denominator is a variation on invested capital or assets. If you go to OPEX business models, you avoid a big increase in the denominator.

[@OmarAl93]

Hello thanks for the wonderful content explaining. Could you explain if we’re during an IT project and we hired consultants and technicians for the project. Although their salaries count as Capex during the budget planning phase , how should we record their salaries in booking? Are their salariere capitalized? Thanks

[@TheFinanceStoryteller]

In my experience, the capitalization thresholds for internally developed IT projects are very high (in terms of minimum $ or Euro spend). If you do meet the criteria, then yes, you would capitalize the salaries. You either first record them as expense, and then transfer them to the balance sheet as an intangible asset, or you record them straight onto the balance sheet in one step.

[@OmarAl93]

@@TheFinanceStoryteller Perfect, thanks a lot. Do the role of the staff play a role in choosing capex/opex criteria? For instance, (Developers, technicians are more involved into building the Untangible Asset). Unlike Project Managers, or Support members who only oversee the project.

[@TheFinanceStoryteller]

Yes, the more clear and more direct the role/involvement is of a person, the better the business reason for capitalization. I don't have any hands-on experience in this area, but would advise to document as solidly as possible by person (timesheets, tasks performed, etcetera), as well as show the benefit / business case of building the intangible asset, as an auditor would look for the "substance" of the claim to capitalize it on the balance sheet.

[@OmarAl93]

@@TheFinanceStoryteller thansk Maestro.

[@Naz-yi9bs]

For determining the Free Cash Flow from the cashflow statement, I've read that you deduct CapEx. Are there instances where you have to deduct CapEx and, or, OpEx? I am assuming that is not the case because by the time you get to the cashflow statement, the calculations already include all of the OpEx? Thank you for the video.

[@TheFinanceStoryteller]

Hi Naz! In most cases, free cash flow (a non-GAAP metric) is cash from operating activities minus CapEx. To get to CFOA, you start with net income (which as you correctly said has OpEx already deducted) and make adjustments. Here's an older video that I made years ago on free cash flow and how different companies define it kzbin.info/www/bejne/nZ2WgH-qer1lhq8 and one from last year with a Netflix free cash flow case study kzbin.info/www/bejne/n5zMq3xumb1kiaM

[@kalkor6294]

For an IT example, buying servers would be CAPEX, paying for maintenance of servers or software licenses would be OPEX.

[@TheFinanceStoryteller]

Agree! Good example.

[@AnilkumarGulia]

Good one

[@TheFinanceStoryteller]

Thanks! Have a look at my video on revenue - profit - free cash flow in business plans as well: kzbin.info/www/bejne/fHSTi4J6jKutptE It shows how a company can be profitable yet struggle on cash, when a lot of money goes into working capital and/or CapEx.

[@charismannaji4863]

CapEx vs OpEx in Solar energy company?

[@TheFinanceStoryteller]

There are two ways to look at that question. 1) For a solar energy company that owns solar energy generation sites, the purchase and installation of the panels and surrounding infrastructure is CapEx, and related depreciation will hit the P&L over the years. Once installed, solar panels are typically very low maintenance, so OpEx is minimal. 2) CapEx vs OpEx business model. CapEx business model: buy and operate solar panels yourself. OpEx business model: purchase (and trade) energy generated by third parties that own the panels.

[@AN-vw4vf]

How we can optimize capital expenditures

[@TheFinanceStoryteller]

By using capital budgeting techniques like NPV, IRR and payback to compare projects kzbin.info/www/bejne/hF7Pf2iuhLd8rcU as well as doing an extended SWOT analysis on the projects kzbin.info/www/bejne/nYakgIeHl7iHbqc

[@KennethRavn]

Buying a TV: CapEx Netflix subscription: OpEx

[@TheFinanceStoryteller]

Love it! Great example.

[@maxjames00077]

I'm trying to figure out what the capex of Tencent is (2021).. I have found 3 websites that provide this information. All 3 they have very different numbers... How is that possible? They are very known websites used by loads of people..

[@TheFinanceStoryteller]

I would suggest to always go to the source: download the annual report from the investor relations website of the company, check the cash flow statement in the section "cash flow from investing activities", CapEx should be the first line item (a cash outflow) in there.

[@maxjames00077]

@@TheFinanceStoryteller thank you

[@rhythmandacoustics]

Learning this deference between Cap Ex and Op Ex makes you learn that DCF is stupid because FCF decreases the more Cap Ex is made. Meaning the more you invest the less cash you have and DCF people think that this is bad. Putting cash to Investments is not a waste but putting increasing money to operational costs means that operational costs cannot be controlled properly.

[@TheFinanceStoryteller]

Hi! I agree with you that it is important to look "beyond the calculation". DCF is a means to an end. It can be useful to do a DCF analysis, but you have to know how to interpret the results. A good business leader and/or financial analyst knows that in different phases of a company's development, there will be different cash flow patterns. A startup might have heavy CapEx investments and as a result negative free cash flow right now (but expectations of highly positive free cash flow in the future). An aging company might have little CapEx as they already have their manufacturing capacity in place, but their free cash flow might start to dry up as they are in very competitive markets with low margins. See also my video on cash flow patterns in various stages of a company's development: kzbin.info/www/bejne/i3jHY5-ie6ecg6M

[@luisger4204]

Great Video! very well explained. thank you so much for sharing your knowledge. I was wondering a few question I'd love you help me. Great Video! very well explained. thank you so much for sharing your knowledge. I was wondering a few question I'd love you help me. Scenario. Company move to the cloud, but payment is not monthly or pay as you go. The payment is 3 year commitment, where you pay up-from every year. example: 300k total investment. at the committment’s signature you pay first year, 1 year later you the next… till the last years where renew the contract or not. Questions. What's the impact, financialy and economically, when you invest in cloud, but the payment is a 3 years agrement?. In this scenario, is it still considered opex (or 100%opex)? How does it impact in your balance sheet? because as soon as you, eathier finance this or pay with yuors own funds, it has an impact in your liabilities but there is no assett to be finance. How does impact on your income statement and your cash flow statement? Most cloud companies offer their cloud services on this hybrids escenario, offering better prices under this old licence method, where you have to to figure out what’s better. Lower price/discounts or financial/economic flexiblity (and more)? Thank you in advance

[@opex5004]

Thanks for the shoutout

[@TheFinanceStoryteller]

Haha, you're welcome! Wishing you all the best with your KZbin channel. My Finance Storyteller channel is all about explaining financial terminology.... OpEx (Operating Expenses) is one of them.

[@Meenar2507]

Thank You Sir!

[@TheFinanceStoryteller]

Most welcome!

[@dogsaviour7911]

A retailer buys finished product and sales the same material to consumer. In this case spending for finished goods is CAPEX or OPEX????

[@TheFinanceStoryteller]

Neither CapEx nor OpEx. Any units that the retailer bought and subsequently sold to consumers go into Cost Of Sales or Cost Of Goods Sold (cost category on the income statement). Any units that the retailer bought and has not sold on yet, go into Inventory (an asset on the balance sheet).

[@dogsaviour7911]

Thanks for clarifying that..!

[@dogsaviour7911]

The Finance Storyteller thanks for clarifying that..!!

[@hassanamghar3031]

lekker bezig

[@TheFinanceStoryteller]

Ech wel! ;-)

[@divyamsaxena5379]

Nicely explained.. Please take some real company examples to explain...

[@TheFinanceStoryteller]

Thank you for the excellent suggestion, I will look into this and make it the topic of an upcoming video.

[@rolandoborriceli8823]

Capex contain also acquisitions

[@TheFinanceStoryteller]

Hello Rolando! I disagree with you on that. CapEx (payments for property and equipment) and business acquisitions are both line items (cash outflows) in the Cash From Investing Activities section of the cash flow statement. I would record and treat them separately.

[@rolandoborriceli8823]

@@TheFinanceStoryteller yes youre right thank you for correnting me. Im learning all those stuff now and im starting to have a mess in all this. What i ment was adujusted net capex: capex - depriciation&amortization=net capex + R&D expanse - amortization of R&D + aquisitions. Correct me if im wrong again :-D

[@rajjisep]

brilliant

[@TheFinanceStoryteller]

Thank you! :-)

[@gregbalandin3985]

thanks!

[@TheFinanceStoryteller]

Happy to help!

[@theMsmrmansour]

thank you

[@TheFinanceStoryteller]

You're welcome! :-)

[@mohitsingh2269]

Hvac part of capex

[@TheFinanceStoryteller]

I would be inclined to say yes, as long as it meets the minimum amount for capitalization.

[@SkyHoustonCrypto]

👁

[@koohamed9219]

very good but u speak fast

[@TheFinanceStoryteller]

My apologies! When I get excited about something, my speaking becomes faster. Maybe it helps to switch on the subtitles while watching?

[@koohamed9219]

you did very good job ...thnx

[@HabibKhan-ll6qs]

get marry CapEx Mantain Wife is OpEx😂

[@brianwynne8626]

01 was here

[@Scott-ff2oe]

GAAP

[@TheFinanceStoryteller]

What about it? 🤔😂