Capex champs

For every company, expansion is paramount. And to expand, it must expend money. Be it opening new offices, building new factories, or buying new machines and equipment, a company must keep growing to stay relevant. This form of expenditure that a company incurs to upgrade and expand is called capital expenditure or Capex.

Why is Capex important?
Markets run on competition, and to compete, you must constantly improve. A company might decide to remain idle and refrain from making any expenditure on expansion. However, it will come at a cost. Its competitors may expand rapidly and start chipping away at its market share.

Is Capex always good?
Too much of anything is good for nothing, which also goes for Capex. At times, companies end up biting more than they can chew, make humongous investments and end up falling into a debt trap. Capex just for the sake of Capex without having a prior execution plan eventually leads to disaster. Thus, mature companies refrain from continuous capex if it does not yield good returns.

Where are the details available?
As it takes time for Capex to bear fruits, it is included in the company's cash-flow statement rather than its profit-and-loss account. Under cash flow from investing activities, you will find Capex details under 'purchase of property, plant, and equipment'. As these are one-time expenses, they are depreciated over the asset's life and are reflected under depreciation in the profit-and-loss account. The two accompanying tables present companies that incurred the highest Capex in terms of their revenue and in absolute rupee terms in FY22.

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