What distinguishes capital expenditures from operating expenditures?

Capital expenditures (CapEx) are investments made by a company to acquire or upgrade physical assets such as property, equipment, or infrastructure, and are intended for long-term use. These expenditures typically involve significant financial outlays and are recorded as assets on the balance sheet, gradually being depreciated over time.

In contrast, operating expenditures (OpEx) represent the day-to-day expenses incurred in running a business, such as rent, utilities, and salaries, which are necessary for maintaining the company's operations. These costs are generally shorter-term in nature, directly impacting the income statement as they are incurred.

The distinction based on the long-term versus short-term nature of these expenditures clarifies how businesses approach budgeting and financial planning. Understanding this difference is crucial for effective financial management, impacting cash flow analysis and investment decisions.