Listen to a Business English Dialogue about Capital expenditure
Gabriel: Hi Piper, do you know what “capital expenditure” means in finance?
Piper: Yes, I think it’s when a company spends money to acquire or upgrade physical assets like property, equipment, or machinery.
Gabriel: That’s correct. Capital expenditures are investments made by companies to improve their long-term productivity or expand their operations.
Piper: Can you give an example of a capital expenditure?
Gabriel: Sure. Purchasing new manufacturing equipment or renovating a company’s office space would both be considered capital expenditures.
Piper: How do capital expenditures differ from operating expenses?
Gabriel: Operating expenses are day-to-day costs incurred in running a business, like salaries, utilities, and rent, whereas capital expenditures are investments in assets that provide benefits over multiple years.
Piper: How are capital expenditures funded?
Gabriel: Companies can finance capital expenditures through a variety of sources, including cash reserves, bank loans, or issuing bonds.
Piper: Are there any benefits to making capital expenditures?
Gabriel: Yes, capital expenditures can lead to increased efficiency, productivity, and competitiveness, which can ultimately drive revenue and profit growth for the company.
Piper: What factors do companies consider when deciding whether to make a capital expenditure?
Gabriel: Companies consider factors like the expected return on investment, the lifespan of the asset, future growth prospects, and available financing options.
Piper: Can capital expenditures impact a company’s financial statements?
Gabriel: Yes, capital expenditures are typically recorded on a company’s balance sheet as assets, and the associated depreciation expense is recorded on the income statement over time.
Piper: How do investors view capital expenditures?
Gabriel: Investors often see capital expenditures as a positive sign that a company is investing in its future growth and long-term sustainability.
Piper: It seems like capital expenditures play a crucial role in helping companies expand and improve their operations.
Gabriel: Absolutely, they’re essential for maintaining and enhancing a company’s competitive position in the market.