Capital expenditure

Money spent on assets that will be used for more than one year. It appears in the investing section of the cash flow statement and on the balance sheet, never as an expense in the year it is spent.

Comparing capital expenditure with depreciation over five years tells you what a company is really doing. Spending consistently above depreciation means the asset base is growing, which is either expansion or the correction of years of under-investment. Spending consistently below it means the plant is being run down, and the profit reported in those years borrowed from a replacement that somebody will have to fund later.

A firm spending ₹460 crore against a ₹380 crore depreciation charge is investing at 1.2 times its wear rate.

The number in the cash flow statement is the honest one. Additions shown in the fixed-asset note can include assets acquired without cash.

Compare it with depreciation. Five years, minimum.

The timing of the spending matters as much as the amount, and it is visible in the capital work in progress balance rather than in the cash flow line. A company that spent ₹460 crore this year on a plant that commissions in two years has consumed the cash now and will report the revenue and the depreciation later, so its current-year returns are understated and its future depreciation charge is already fixed. Reading capital expenditure beside the work-in-progress movement tells you where in that cycle the company sits, which is the difference between a business that is investing and one that has finished.