What are capital expenditures (CapEx) used for?

Capital expenditures, commonly referred to as CapEx, are investments made by a business in physical assets that are expected to provide benefits over a long period. These expenditures typically involve significant sums of money and are used for acquiring, upgrading, or maintaining fixed assets such as property, buildings, machinery, and equipment.

The reason that acquiring and maintaining physical assets is the correct answer lies in how CapEx is integral to a company's growth and operational capacity. For instance, when a company purchases new machinery, it is making a long-term investment that will help enhance productivity and efficiency. Similarly, capital expenditures might include costs associated with improving existing facilities or upgrading technology to remain competitive. Such investments are essential because they enable a company to generate revenue and sustain its operations over time.

In contrast, funding marketing and advertising, paying dividends to shareholders, and investing in research and development are generally categorized as operational expenses, financing activities, or research investments, rather than capital expenditures. These activities are crucial, but they do not fall under the definition of CapEx as they do not directly relate to acquiring or maintaining long-term physical assets.