Capex (Capital Expenditure) refers to major investments in tangible, long-term assets like buildings, machinery, and equipment that have a useful life of more than one year. In contrast, MRO (Maintenance, Repair, and Operations) covers smaller, recurring expenditures on indirect supplies and services, such as spare parts, safety gear, and cleaning supplies, needed for the daily operation and upkeep of a business.
MRO Procurement: Covers indirect supplies, such as replacement parts for machines or janitorial services—things that aren't part of the end product but are essential to producing it. CapEx: Focuses on large-scale investments, like purchasing new machinery or expanding a facility.
CapEx is short for capital expenditures and refers to investment spending in long-term assets (fixed assets). These expenditures include new buildings, machinery, and other equipment needed for an organization's day-to-day operations. Most companies use capex financing to fund their long-term investments.
In the oil and gas sector, CapEx is essential for activities like drilling new wells, developing oilfields and investing in technology to enhance production capabilities. CapEx decisions are critical for ensuring long-term growth and sustainability.
The term MRO is often used in contrast to capital expenditures (CAPEX), which refers to the funds used to purchase new equipment or facilities. While MRO spending is typically considered a operational expense (OPEX), it can also include some element of CAPEX, such as the costs of upgrading existing equipment.
The Ultimate Guide to Smart MRO Procurement: Maximizing Efficiency and Savings
Who pays for CapEx?
Capital expenditure, often abbreviated as “Capex,” describes the funds spent by a company to acquire, upgrade, and maintain physical fixed assets, such as property, buildings, and equipment.
Capital expenditures are a company's major, long-term expenses while operating expenses are a company's day-to-day expenses. Examples of CapEx include physical assets, such as buildings, equipment, machinery, and vehicles. Examples of OpEx include employee salaries, rent, utilities, and property taxes.
OpEx (Operating Expenditure) refers to the ongoing costs of running a business on a day-to-day basis, like salaries or utility bills, while CapEx pertains to one-time investments in long-term assets.
Capital expenditure (CapEx) involves spending on long-term assets like buildings or equipment, not just daily costs. Unlike daily expenses, CapEx is recorded as an asset and spread out over time through depreciation.
MRO purchasing or procurement refers to the process of acquiring the goods and services needed for business maintenance, repair and operations. These items are not directly linked to the production or delivery of the core product or service but are essential to keep the business running smoothly.
To calculate CapEx, subtract the property, plant, and equipment (PP&E) value at the beginning of the period from the PP&E value at the end of the period, then add the depreciation expense for that period. This provides the total amount spent on acquiring or improving physical assets.
The seven sisters were the Standard Oil Company of New Jersey (later Exxon), the Standard Oil Company of New York (Socony, later Mobil, which eventually merged with Exxon), the Standard Oil Company of California (Socal, later renamed Chevron), the Texas Oil Company (later renamed Texaco), Gulf Oil (which later merged ...
Because capital expenditure is not an expense for tax purposes, they cannot receive full tax deductions in the first year, with a few exceptions. Qualified assets benefit the business beyond one tax year. For example, if business equipment can last five to eight years, you spread the deductions throughout its lifetime.
Finance Team: The team who checks the cost, evaluates the ROI, confirms if there's room in the budget, and manages financial document management. Senior Management: The executives or directors who make sure the purchase aligns with the company's strategy and give final approval.
