ShmoopTube

00:00

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

00:08

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

00:13

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

00:18

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

00:24

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

00:30

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

00:36

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

00:41

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

00:46

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

00:50

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

00:55

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

01:00

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

01:05

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

01:10

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

01:15

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

01:20

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

01:26

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

01:31

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

01:36

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

01:40

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

01:44

worthless. so they'll spend 10 million dollars in

01:47

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

01:52

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

01:57

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

02:01

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

02:06

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

02:09

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

Full Transcript