How are capital expenses defined in financial terms?

Capital expenses, also known as capital expenditures or capex, are defined as costs incurred for long-term business assets that provide benefits over multiple years. This includes expenditures on items such as machinery, buildings, and equipment that are necessary for the running of the business and have a useful life extending beyond a single accounting period.

The rationale behind this definition is that capital expenses result in the acquisition of tangible or intangible assets that will be utilized over several years, contributing to the company's operational capabilities and revenue-generating potential. By recognizing these costs as investments in future productivity, businesses can better strategize their spending and understand the long-term benefits of their expenditures.

Operational costs, expenditures on employee training, and investments in stocks and bonds do not fit the standard definition of capital expenses, as they either represent recurring costs, non-essential skills development, or financial investments, rather than long-term asset acquisition.