Capital Exp. Vs. Working Capital:
Capital expenditure
It refers to the money spent on long-term assets that are expected to provide benefits for more than one accounting period. These assets include property, plant, and equipment (PP&E), intangible assets, and investments. Capital expenditure is recorded on the balance sheet as an asset, and the cost is depreciated over the useful life of the asset.
Working capital
On the other hand, refers to a company’s short-term assets and liabilities that are used in its day-to-day operations. Working capital represents the amount of a company’s short-term assets that are available to cover its immediate liabilities. Working capital is used to finance a company’s ongoing operations and is a measure of its liquidity.
In summary, the key difference both are that capital expenditure refers to long-term investments in assets, while working capital refers to a company’s short-term assets and liabilities used in its day-to-day operations.
FAQS:
What is Capital Expenditure (CapEx)?
CapEx refers to funds used by a company to acquire, upgrade, or maintain physical assets such as property, buildings, or equipment.
What is Working Capital?
Working capital is the difference between a company’s current assets and current liabilities, representing liquidity for day-to-day operations.
How does CapEx differ from Working Capital?
CapEx involves long-term investments in fixed assets, while working capital manages short-term operational needs.
Is Working Capital part of the balance sheet?
Yes, working capital is reflectet in the balance sheet as the difference between current assets and current liabilities.
Can CapEx impact working capital?
Yes, large capital expenditures can reduce available cash, impacting a company’s working capital.
Does working capital include CapEx?
No, working capital pertains to short-term assets and liabilities, while CapEx relates to long-term assets.
What are examples of CapEx?
Examples include purchasing machinery, upgrading IT systems, or constructing buildings.
What are examples of working capital items?
Examples include inventory, accounts receivable, and accounts payable.
How is CapEx finance differently from working capital?
CapEx is typically finance through long-term debt or equity, whereas working capital is manage through short-term loans or internal cash flow.
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