CAPEX and OPEX

CAPEX (Capital Expenditure) is spending by a firm to acquire long-lived assets — machinery, buildings, software licenses, vehicles — that will generate benefit across multiple accounting periods; it is capitalized on the balance sheet and depreciated over the asset's useful life. OPEX (Operating Expenditure) covers items consumed within the current period — salaries, rent, raw materials, subscriptions, maintenance, logistics — and is expensed immediately on the income statement. The two categories behave differently for accounting, tax, and cash flow: CAPEX creates a large upfront cash outflow plus a multi-year depreciation expense pattern, while OPEX follows a smooth cash-equals-expense pattern. A modern trend is the CAPEX → OPEX shift, driven by cloud services (SaaS, IaaS), equipment leasing, and subscription software models that convert prepaid capital into annual operating fees. For an SMB this shift is two-edged: it reduces working-capital requirements and adds flexibility, but it may increase nominal total cost of ownership (TCO) — the lease-vs-buy decision is resolved by NPV comparison. Tax treatment also differs: CAPEX depreciation provides a periodic tax shield, while OPEX is fully deductible in the year incurred; jurisdictions with accelerated depreciation rules favor CAPEX, others may favor OPEX. References: Modigliani and Miller (1958) for the conceptual capital-structure framework.