Finance: What is the difference between CAPEX and OPEX?

What is the difference between CAPEX and OPEX? CAPEX, or Capital Expenditures, are large outlays of funds used by a company for acquiring equipment, buildings, installations, and other illiquid assets necessary to run the business. OPEX, or Operating Expenses, refer to smaller day to day overhead, products and services expenses, such as utilities, payroll, office supplies, trash removal, etc.

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Transcript

00:23

tesla motors battery plants for most capital expenditure projects the

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cash has paid up front like a billion box for

00:30

this washing machine assembly factory fully robotic sized and then

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it gradually becomes useless over twenty five years at which

00:37

point it sold for scrap of say two hundred fifty

00:40

million So over twenty five years its value will have

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declined seven hundred fifty million dollars worth or about thirty

00:45

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

00:55

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

00:58

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

01:14

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

01:25

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

01:39

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

01:46

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

02:00

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