Difference between opex and capex

What is the difference between Opex vs capex?

Opex (operating expenditure), refers to day-to-day business spending. Capex (capital expenditure), refers to investments in assets.

Businesses distinguish between opex and capex to clarify spending on running the business vs equipping it. This distinction is critical to complying with tax rules.

Opex meaning

Opex is short for operating expenses (or expenditure) and it includes day-to-day business expenses.

Opex are often short-term, recurring expenses that keep the business operating steadily for most small businesses. Opex doesn’t include the cost of goods sold (COGS).

Opex examples include:

• Wages and salaries: payments to employees
• Sales general and administration: costs not connected with the product itself (such as marketing, insurance and consultant fees).
• Utilities: electricity, internet services.
• Depreciation: cost associated with your business assets (like work tools) getting older and losing value over time.
• Rent: payments for business premises or offices

Opex is reflected on the profit and loss statement and the cash flow statement, under ‘Cash flow from operations’.

Capex meaning

Capex is short for capital expenses (or expenditure) and it includes investments in business infrastructure.

Examples include buying machinery, property, buildings, work tools, and sometimes even whole other businesses (in the case of acquisitions).

Capex is divided into two categories:

• Maintenance capex: investments made to maintain current business performance (like replacing broken equipment).
• Growth capex: investments made to improve the business or help it grow (like buying equipment or land for building a new plant). It‘s a discretionary expense.

Capex is reflected in the cash flow statement, under ‘Cash flow from investments’. The assets bought will also be recorded on the balance sheet.

Key differences between opex and capex

Opex and capex are similar because they both represent money going out of the business but there are important differences. Check out the key features of opex vs capex.

Opex is short term, capex is long term

• Opex: Operating expenses are short term costs spent on things you’ll use within a year. For example, electricity bills can be adjusted monthly.
• Capex: Capital expenses are long term investments in assets that will be around for longer than a year. The effects of a poor capex investment will generally be felt for longer.

Opex affects profits while Capex doesn’t

• Opex: Running costs subtracted from revenue when working out profit. The higher your opex, the more revenue you need to turn a profit.
• Capex: Long term investments intended to make the business better. They’re recorded on the balance sheet and aren’t considered part of the profitability equation.

Capex is often discretionary, Opex is essential

• Opex: Business will grind to a halt if you’re not paying your running costs (opex).
• Capex: Capital expenses can often be delayed if they need to be.

There are exceptions, of course. If equipment fails, you may have to make a capex investment to replace it right away. But generally you’ll have some flexibility about when to make investments.

Opex tends to be stable, Capex may be more sporadic

• Opex: Recurring costs like rent, utilities, and wages will tend to follow a predictable pattern.
• Capex: For many small businesses, capex investments get made when money or opportunity arises, or when equipment fails. As a result, they tend to be uneven.

See related terms

Capital expenditure

Operating expenditure

Balance sheet