Financial Metrics · Basic level · 3 min read ·
What is CAPEX?
CAPEX, short for Capital Expenditure, is money paid once to create or improve an asset that is used for years. In hospitality it means furnishing the apartments and setting up the operation; in solar energy, buying and installing the equipment. It is kept separate from month-to-month costs.
In 30 seconds
- CAPEX is paid once and leaves something installed that lasts for years.
- It isn't a month-to-month cost: that's OPEX.
- It is reported separately so it doesn't distort the operation's result.
Why should you care?
Mixing CAPEX with each month's costs would make it look like the project spends every month what it actually paid only once.
- You read a report knowing which expenses repeat and which don't.
- You understand why a month's cash improves when CAPEX is fully paid, even though the operation is the same.
- You recognize CAPEX in a solar project's tax benefits.
Think of it as buying the fridge and paying the electricity
Buying a fridge is a big payment you make once and that serves you for years: that's CAPEX. The electricity it uses every month is a recurring cost: that's OPEX. Nobody would say the fridge costs the same every month.
How does CAPEX work?
- 1
Define what needs to be set up
Furniture, appliances and supplies in hospitality; panels, inverters, mounting and connection in solar.
- 2
Pay once
Upfront or in agreed installments, but for a defined amount that doesn't repeat every month.
- 3
Report it separately
It doesn't enter the operating result: in the accounts it is recorded as an asset and depreciated over the years. Its payments show up separately, in cash.
- 4
Finish paying
Once fully settled, installments stop leaving the cash account. The operating result doesn't change because of it.
An example with numbers
Illustrative figures, unrelated to any project, in millions of pesos: furnishing and launching four short-stay apartments.
| Furniture | 40 |
|---|---|
| Appliances | 20 |
| Linens and kitchenware | 10 |
| Launch (photos, software, permits) | 10 |
| Total CAPEX | 80 |
That's 80 million paid once and installed for years. If it were charged to a single month, that month would look like a huge loss even with a healthy operation.
Where do you see it at Circular Urban?
In hospitality projects, reports show two figures: the Result before CAPEX, which measures the operation, and the Adjusted Result, which also subtracts the month's CAPEX payments and measures how much money left the cash account. In solar projects, CAPEX is the basis for the special income tax deduction for non-conventional energy sources.
- Each project's Management Reports, where CAPEX is kept separate from operating costs.
- Each solar project sheet, in the tax benefits: Special Deduction 50% of CAPEX.
What changes in your finances once you get it
You separate purchases from fixed costs
A computer or a fridge isn't a monthly expense; your phone plan is.
You read reports calmly
You know a month with a CAPEX installment doesn't say the same as a month with high operating costs.
You plan big outlays
Purchases that last for years are planned apart from the monthly budget.
Common mistakes
- Myth
CAPEX is an expense the project has every month.
- In reality
It's paid once, even if in installments. Once fully paid, installments stop leaving the cash account.
- Myth
CAPEX and OPEX are the same thing with different names.
- In reality
CAPEX creates or improves the asset; OPEX keeps it running month after month. They're reported separately.
- Myth
Lower CAPEX is always better.
- In reality
Lower-quality equipment or furnishings can cost more later, in repairs, replacements or lower income.
Test yourself
A project pays 48 million pesos of CAPEX in 8 equal monthly installments. How much is each installment?
Keep learning
This content is educational. Every participation carries risks inherent to the project, including the possibility of partial or total loss, and results are subject to each project's actual performance.
