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What Is Capex (Capital Expenditures)?

Capex is the cash a company spends on buildings, equipment, servers and other long-lived assets. Where to find it, how to read it, and a real example from a 10-K.

  • capital expenditures
  • capital expenditure
  • capital spending
  • purchases of property and equipment

Capex, short for capital expenditures, is the cash a company spends buying or building long-lived assets: buildings, machinery, servers, networks, stores. It is money that does not disappear into the current year's expenses but turns into assets that keep working for years.

Where to find it and how to use it

Capex does not need calculating, only finding. It sits in the investing section of the cash flow statement as purchases of property, plant and equipment, sometimes combined with intangible assets, always with a minus sign.

Its most important use is free cash flow:

Free cash flow = Operating cash flow - Capex

Say a company generates $200 million from operations and spends $150 million on new equipment. It has $50 million left to return to shareholders or use to pay down debt. A second company with the same operating cash flow and $20 million of capex has $180 million of free cash. The two can report identical profit and identical EBITDA.

A real example

Microsoft's fiscal 2026, which ended on June 30, 2026, included $115.95 billion of additions to property and equipment, mostly data centers and servers for cloud and AI services. A year earlier the figure was $64.55 billion, and two years earlier $44.48 billion. Capex rose 80% in a single year.

Operating cash flow over the same year was $182.94 billion, so capex absorbed 63% of the cash from operations. Free cash flow, about $66.99 billion, came in below the $71.61 billion of the year before even though operating income grew. The record profit year was also a year in which less free cash was left for shareholders, because the company committed it to future demand for computing capacity.

Whether that was the right call will be settled by the years ahead, not by the number itself. The first signal is likely to be depreciation: those servers will start weighing on operating income well before anyone knows whether they earn back their cost.

How to read it

The simplest test compares capex with depreciation. A company that spends roughly its depreciation charge year after year is maintaining its asset base. One that spends much more is growing it. One that spends clearly less may be deferring unavoidable upkeep, which flatters today's free cash flow at the expense of tomorrow's.

The second test is capex as a share of revenue. Software companies usually spend a few percent, telecom and utility operators a double-digit share, and Microsoft spent 35% in fiscal 2026. A ratio that high moves a business from asset-light toward capital-heavy, and that changes how it has to be valued.

What to watch for

Capex is not all investment. Finance leases, acquisitions and capitalized software costs may not pass through this line, yet economically they are the same thing. For companies that lease heavily, reported capex understates what they actually spend.

EBITDA leaves out both capex and depreciation by design, so for a capital-heavy company it can describe a healthy business that is in fact burning cash. Capex is the correction that brings EBITDA back to earth.

Free cash flow is operating cash flow minus capex. ROIC shows whether the capital invested earns a return. Finding capex in a filing step by step is covered in how to read a cash flow statement.

Real example

Microsoft spent $115.95 billion on property and equipment in fiscal 2026, up from $64.55 billion a year earlier. That was 63% of the year's $182.94 billion of operating cash flow.

Source

Frequently asked questions

Where do you find capex in a filing?

In the investing section of the cash flow statement. US companies usually label it purchases of property and equipment or additions to property and equipment; some combine it with purchases of intangible assets. It always carries a minus sign, because it is cash leaving the company.

What is the difference between maintenance and growth capex?

Maintenance capex keeps the business at its current scale: replacing worn machines, refurbishing stores. Growth capex builds new capacity: factories, stores, data centers. Filings rarely split the two, so investors usually estimate it, for example by comparing capex with depreciation.

Why isn't capex an expense on the income statement?

Because the asset it buys serves for many years, so accounting spreads its cost over that useful life as depreciation. The cash leaves at once, but it reaches profit gradually. That is why cash flow runs well below profit in a year of heavy investment.

Is high capex good or bad?

Neither by definition. High capex is a good sign if the new assets earn more than the cost of capital, and a bad one if the company has to spend heavily just to hold its position. Return on invested capital over the following years settles the question.

Related terms

This page explains a term in plain language. It is not investment advice and carries no recommendation to buy, sell, or hold anything.