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Finance allah shmoop what is the difference between cap packs

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and op x cap ex that's capital expenditure spending on

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capitol things things that cost a lot of money like

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this lava lamp making factory and this plastic extrusion pump

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that looks like the back of a donkey And this

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tesla motors battery plants for most capital expenditure projects the

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cash has paid up front like a billion box for

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this washing machine assembly factory fully robotic sized and then

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it gradually becomes useless over twenty five years at which

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point it sold for scrap of say two hundred fifty

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million So over twenty five years its value will have

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declined seven hundred fifty million dollars worth or about thirty

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million a year So to properly account for the declines

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in value of that factory and to reflect those value

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declines is part of the profits of the company has

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shown on its income statement This thing you'd have a

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line called the appreciation Yeah and on it you'd show

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each year a non cash expense of thirty million box

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the cash a billion dollars worth flowed out of the

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company when the factory was built and paid for and

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then gradually that factory hopefully made back mohr than that

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billion dollars in profits over time or well it wouldn't

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have been green lit for purchase in the first place

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And if it didn't pay back then oh well the

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company shows a loss Maybe it goes bankrupt Maybe it

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has other products keeping it afloat So that's expenditures for

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capital cash goes out early and then is recouped or

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regained or paid for in one form or another either

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by allowing the company to produce existing products cheaper better

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faster or to build new products It couldn't build without

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the capital expenditures to build that factory Okay so that's

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cap ex what's aap ex well op stands for operating

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expenditures yet op x that is cost required to run

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the business or operate the business And usually op x

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is divided into two categories First there are above the

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line It costs the inputs that create the products themselves

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like for barbie it's her plastic boob molding thing the

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fake blond hair and this hair really is fake and

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not just the color Her eyeball inserts mostly in blue

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miniature clothing and then whatever's left over is used to

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construct you know her dream house and then there's the

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cost to operate the company that salary of the ceo

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the rental of the buildings the insurance costs in case

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there's a hot spell And you know the a c

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conks out one hundred thousand barbie's melt and not just

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from looking deeply into ken's eyes These are below the

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line expenses which combined with the above are basically all

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of the company's expenses toe operate but do not include

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taxes and or dividends And this makes sense as taxes

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very with the operating profits of the business and dividends

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while committed to by the board are usually done at

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will So they're more kind of ah moral obligation of

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companies and more than they are a legal requirement for

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say so Those come after op acts there variable and

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optional lish whereas buying those huge two ton blocks a

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plastic are in fact a requirement If mattel is going

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to continue teo stamp out barbies right So they come

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above line All right well the key differentiator in op

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pecs and cap pecks the timing of when the expenses

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are recognized or recorded that is for most operating expenses

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There recognized as they are incurred like in that period

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right like in the period the company drew down twenty

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tons of plastic at a cost of ten grand a

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ton so the company recognizes twenty times ten thousand dollars

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or two hundred grand in plastic block expenses in the

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quarter The timing of the expense coincides with its usage

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as a variable cost Well in the case of catholics

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there's usually a predetermined schedule for how and when it's

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expenses or declines in value will be recognized Going forward

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Lates all scheduled like an estimation is made as to

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how many years the factory will last Is it Ten

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is it Twenty is at thirty and then some amount

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in its value is taken away too Eventually hit whatever

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amount it will sell for as scrap when the depreciation

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period is over So that's cap ex and off x

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and well then there's ken who's just well it looks 00:04:06.725 --> [endTime] like an x

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