A capital expenditure is an outlay of cash to acquire or upgrade a business asset. Common examples of a capital expenditure include the purchase of a new building, or the cost of significant upgrades to an existing facility. A capital expenditure is considered to be deductible, because it represents an improvement to the business, and it is deducted over the expected life of the item, rather than all at once as in the case of repair or maintenance expenditures.

A capital expenditure is also sometimes referred to as capital spending or a capital expense, and many publicly traded companies list their capital expenditures for the year in annual reports, so that stockholders can see how the company is using their money in long term planning. Most companies engage in capital expenditures yearly, in an attempt to constantly upgrade and improve facilities, vehicles, and equipment.

Sometimes it can be difficult to determine the difference between a capital expenditure and a routine expense. In general, if the expenditure improves the value of the asset, it is a capital expenditure, while if it simply keeps the asset in working condition, it is a routine expense. For example, installation of a new bathroom in a rental is a capital expenditure, because it increases the value of the rental. Repairing the stove, however, is a routine expense designed to keep the rental in operating condition.

Engaging in capital expenditure is a routine way to improve and expand a business, whether done on small or large scale. Large corporations may acquire additional companies, as in the case of an automotive giant which purchases another car manufacturer, while smaller businesses may consider the purchase of a new office printer to be a capital expenditure. In general, allowances are made in the budget of the company for capital expenditures, including unexpected ones involving the replacement of items which are no longer able to be repaired.

A capital expenditure is amortized over the length of the life of the investment, which may range from an expectation of five to 40 years, depending on the investment. This time period is known as a recovery period, and recovery periods for major assets are set out so that companies will know how to deduct capital expenditures. The amortization means that the company cannot deduct the cost of the capital expenditure all at once, and must instead spread it out over the life of the investment. For example, someone who installs a 25,000 US Dollars (USD) fence which has a five year recovery period may deduct 5,000 USD each year for five years.