CAPEX vs. Net Working Capital: An Overview

Capital expenditures (CAPEX) and net working capital are both essential for the short-term and long-term success of a company. However, there are distinct differences between the two metrics.

Net working capital is dif♎ferent from CAPEX as it measures the short-term liquidity of a company. CAPEX, on the other hand, is a long-term investment in the futu⛦re of a company.

Net working capital is related to CAPEX, though indirectly. For example𓆉, a company that generates positive net workiꦚng capital consistently should have the financial viability to either make capital expenditures or obtain financing for capital expenditures.

CAPEX

澳洲幸运5官方开奖结果体彩网:Capital expenditures are sizable purchases of physical or 澳洲幸运5官方开奖结果体彩网:tangible assets, which will be used for more than one year. In other words, CAPEX might consist of purchases of 澳洲幸运5官方开奖结果体彩网:fixed assets designed to improve earnings for the company in the long term. CAPEX can also include upgrades to exis💝ting assets like machin♚ery, for example.

Other examples of CAPEX include 澳洲幸运5官方开奖结果体彩网:property, plant, and equipment, buildings, computers, and company vehicles. As such, CAPEX items tend to⛦🐓 have considerable costs that are spread over several years. 

CAPEX can also include 澳洲幸运5官方开奖结果体彩网:intangible assets or noꦆn-physical asset♒s, such as patents and licenses. Also, there are instances where research and development can be considered CAPEX.

Different industries require different levels of 澳洲幸运5官方开奖结果体彩网:capital investment. For example, manufacturing companies tend to be capital-intensive, meaning they have substantial amounts of heavy equipment or fixed assets. As a result, they c♏lassify both the initial purchase of the equipment and upgrades to existing equipment as capital expenditure.

Net Working Capital

Net 澳洲幸运5官方开奖结果体彩网:working capital is a liquidity metric used to determine if a company has enough shoꦗrt-term assets, called current assets, to cover its short-term liabilities, aka current liabilities.

Current assets include cash, cash equivalents, accounts receivable, and inventory. Curreꦍnt liabilities are financial obligations that are due in under one year; at most; many are 𒊎due in 90 days or less.

Current liabilities include acco🌠unts payable, income🌌 taxes, dividends, short-term leases, and debt that matures within one year. Both current assets and current liabilities are listed on the balance sheet.

Net working capital is calculated by subtracting current liabilities from current assets. The calculation is used to mea♓sure the short-term liquidity of a company by creditors and investors.

Net working capital is a liquidity or 澳洲幸运5官方开奖结果体彩网:solvency ratio; it shows how much money a com✃pany should have on hand over the next 12 months. Companies with poor net working caꦅpital numbers might find it difficult to obtain financing from creditors, investors, and banks. 

CAPEX vs. Net Working Capital Example

Below is Apple's balance sheet for its fiscal year-end 2024. Under non-current as🅰sets, Apple lists CAPEX as "property, plant, and equipment" at $45.68 billion. Net working capital is a fina🐲ncial metric that will need to be calculated from Apple's balance sheet.

Apple reports current assets of $152.99 billion and current liabilities of $176.39 billion. To calculate working capital, subtract current liabilities from current assets, resulting in a working capital of -$23.4 billion.

A negative working capital could indicate that a company has liquidity issues, as it may not be able to cover its short-term liabilities with its short-term assets. It can be normal for some industries, such as those in the retail space, where companies rely on rapid 🌟cash flows.

While Apple h🦩as a negative working capital, it is most likely not a cause for concern as Apple has high levels o🅰f cash reserves and does not rely on short-term liabilities to run its operations.

As part of its business model, Apple's customers generally pay in cash and Apple reinvests that cash. Additionally, given its place in the industry, Apple has strong negotiating power with its suppliers. For these reasons, Apple's negative working capital is not a cause for concern but rather a sound business strategy.

The Bottom Line

CAPEX and net working capital are crucial financial metrics that highlight a company's long-term investments and short-term liquidity, respectively. While CAPEX focuses on purchases of assets like property and equipment, net working capital assesses whether a company can cover its short-term obligations.