Business

Difference between CAPEX and OPEX

Main Difference

These two terms are opposite to each other, and that can be seen just by how the terms are described. CAPEX is a term that stands for Capital Expenditure and is the money that is spent by a company on their long terms investments such as buildings and machines. OPEX is the term that stands for Operational Expenditures and is the money that is spent for dealing with the daily costs which are required to run a business.

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Comparison Chart

Basis of Distinction CAPEX OPEX
Definition Money which is used by an organization to buy something new or to upgrade. Money which is utilized in running the routine duties within a company.
Name Capital Expenditure Operational Expenditures
Cost One time cost. It has to be paid over and over again until the processes keep on running.
Profit It is a slow and gradual process The end product is achieved in a short time.
Example Money paid to buy a machine. Money spent on buying the raw material for that machine.
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CAPEX

This term is actually known as Capital Expenditure and is the money which is used by an organization to buy something new or to upgrade something they already have. This includes physical assets such as property, industry, machines and other equipment. The primary use of this type of spending is either to start new projects or to invest in the long-term businesses. When a company spends something big, their main aim is to make sure they are able to not only get the initial money back but are also able to get profits over the long term, and that is why in the capital expenditure the long term benefits are taken into consideration. The things which are bought or the land acquired for this is permanent unless someone decides to buy them or the company stops working. The another factor relate to it is that one cannot fully gain so much profit in the initial period that all the funds are earned back, it is a slow and gradual process in which over time people are able to make the full use of it. This type can be taken into several contexts but is usually used for business purposes. For a company or industry, it will be the money which is required to buy new things and does not include the payments which are to be made for employees. For real state, it will be the buildings or lands which are bought by people to start producing something or even for their own use in the long run.

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OPEX

This term is known as Operational Expenditures and can also be called other names such as Operational expense, or operational costs in some cases. This term can be defined as the expenditures which are utilized in running the routine duties within a company or industry. It does not have to be long term, and you do not have to worry about gaining profits or making a loss. It deals with the day to day businesses led by the employees and other costs such as payments, bills, and money spent on introducing a product in the market. The best example for this case will be a machine which is bought for drilling. All the tools which are used on the machine, all the raw material that is purchased and the money which is given to the person who is operating the machine, is known as Operational Expenditure. On the other hand, the device and the initial cost will be taken as the opposite, which is the capital expenditure. More than just buying something, the main aim of every industry is to develop the business they are running, and therefore these types of costs become the primary focus within an organization. They are more fruitful as well since you get immediate benefits and do not have to wait for a long time. When all the raw materials and tools are provided, it won’t be long when the end product is available, and that is what the main aim is. These type of costs can include anything from accounting money, license fee, advertising, maintenance, insurance and repairs.

Key Differences

  • The term CAPEX stands for Capital Expenditure while the term OPEX stands for Operational Expenditure.
  • CAPEX is the money which is used by an organization to buy something new or to upgrade something they already have. OPEX is the money which is utilized in running the routine duties within a company or industry.
  • CAPEX is one time cost most of the times while OPEX is a cost that has to be paid over and over again until the processes keep on running.
  • The best example of CAPEX will be the money paid to buy a machine or a piece of land while the best example of OPEX will be the money spent on buying the raw material for that machine.
  • In CAPEX one cannot fully gain much profit in the initial period as it is a slow and gradual process while in OPEX you get an instant return on the money that is being spent.
  • CAPEX is they money that is accounted for over a period of time in 3-5 years while OPEX is the money which has to be accounted for on a monthly or yearly basis.

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