Capital Saturation

finance- a la shmoop. what is capex ?funny name kind of sounds like group therapy

for men trying to quit wearing hats or maybe it's a Space Age head cover [men sit in a circle]

Michael Phelps will wear on his comeback tour. sadly it's neither of those. capex

is short for capital expenditure and it simply refers to the spending of capital

to buy stuff. you know what an expenditure is ie an expense, for example

when famed surgical glove manufacturer all you need is glove spends money on [man smiles in front of warehouse]

synthetic rubber for its products, well, the buying of the gallons and gallons of

rubber is an expense. they generally use that rubber within a short timeframe of

when they bought it- a month a quarter certainly within the year. so the buckets

of rubber they buy for their raw material are just a normal expenditure

or expense. so what makes something a capital expense? well think about it like

a petty crime versus a capital crime. in a petty crime the criminal will do time

and be done and move on in life. a capital crime means someone was killed [man walks out of jail]

whole different level of serious -versus that jaywalking thing -so when a capital

expenditure comes around well its costs are taken or allocated or amortized over

long periods of time like years or even decades. you know like a prison sentence.

so when all you need is glove buys a new robotic rubber gloves machine so that [assembly line shown]

they no longer have to sew the gloves by hand, that is a capital expense. why

because it costs a lot of money 10 million bucks in fact ,and because they

expect to be able to use that thing for 20 years before it wears out and is

worthless. so they'll spend 10 million dollars in

cash today of their capital to buy it and then reduce that value by 500 grand

a year on their balance sheet each year for 20 years. the value of their capital [balance sheet shown]

expenditure will slowly decline to nothing on their books but it will

presumably more than pay for itself in saved costs applied to human labor in

making the gloves. as for actually using the [robot holds up hand]

however well it'll be a while until we can trust robots with that.