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CapEx vs. OpEx: A comparison

Every day, companies are faced with the task of using available capital efficiently. The aim is always to increase sales through investments while remaining financially flexible. The change from a CapEx to an OpEx-focused corporate approach offers numerous advantages in this regard.

What are CapEx and OpEx?

The total expenditure of a company results from capital expenditure and operational expenditure. The two types of expenditure differ essentially in 2 points,

  • the different payment methods and
  • the difference in taxation.

CapEx - Capital Expenditures

Capital expenditures comprise all longer-term investments in a company's assets. The aim of capital expenditure is to increase production and productivity in order to boost sales and profits. Which assets these are in detail can vary depending on the company and industry. Typical capital expenditures are investments in machinery, buildings and original equipment such as office equipment. Capital expenditure also includes expenditure on maintenance and repairs.

Capital expenditures are usually one-off payments made in advance. As an investment in fixed assets, capital expenditure increases the asset side of the balance sheet. The assets are used and depreciated over a period of several years.

Capital expenditure is also important for investors when valuing a company. A healthy CapEx ratio (ratio of capital expenditure to sales revenue) can be seen as a positive sign of growth. It is not possible to give a blanket answer as to how high an appropriate CapEx ratio is; instead, a peer group comparison must be made between companies in the same sector.

OpEx - Operational Expenditures

Operational expenditures include all expenses that are necessary to enable and continuously ensure a functioning operational business. What constitutes operational expenditure also differs from company to company. Typically, operational expenses include the cost of raw materials and supplies, personnel costs, energy costs and costs for sales and administration.

Operating expenses are recurring expenses that are usually paid monthly or annually. They are allocated to the accounting period in which the costs are incurred and recognized in full in this period.

What are the advantages of shifting from CapEx to OpEx?

The shift from investments in assets to increase sales to operating expenses is the result of a change in accounting logic.

Renting is a typical example. Instead of buying and incurring high one-off expenses, the respective assets are rented for a monthly installment. Such an asset-light approach can already be observed in many companies. We can confirm this trend in our customer projects and are increasingly receiving inquiries resulting from a change in strategy towards asset-light. 

Lendis Downloads - From Capex to Opex

Download: From CapEx to OpEx

Why a shift from CapEx to OpEx is worthwhile for your company!

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One area in which there has been a major shift from CapEx to OpEx in recent years is corporate IT departments. The emergence of "as a service" and cloud services has led to a widespread shift from procuring strategically important assets in-house to renting them. Software licenses as well as hardware such as server capacity, network infrastructure and laptops are provided by external service providers and paid for on a monthly basis or according to the capacity used.

However, the shift from buying to renting can now be seen in almost all sectors. In many cases, the conversion from CapEx to OpEx can offer a number of advantages in both the short and long term.

Advantages: Minimization of the financing risk

Converting CapEx into OpEx leads to a reduction in capital expenditure. If no capital expenditure is incurred, the investment risk is consequently reduced. A shift towards operational expenditures therefore helps to minimize risk in the company, particularly in the case of uncertain business development.

Reduced capital expenditure also leads to a reduction in working capital. If no assets are held that are not required in certain phases or are not fully utilized, capital is not tied up unnecessarily. Instead, the company has more liquid funds and the free capital can be used profitably elsewhere. Last but not least, lower investment costs reduce barriers to entry. Business start-ups are simplified as high investment requirements, for example for the initial furnishing of office space, are not necessary.

Advantage: Flexibility

There is no long-term commitment beyond the term of the contract. If contractually agreed with the external service provider, OpEx can usually be quickly adapted to current requirements and is therefore more predictable. Fluctuating demand, process or preference changes can be responded to flexibly at little or no additional cost. As the external service provider is responsible for the technical equipment, it is always possible to work with state-of-the-art technology.

Cloud providers are one example. The operator takes care of regular upgrades of the technology used, and there are no additional costs for the customer. Especially in times of ever shorter product life cycles, high costs can be saved in this way. The same applies to cases of damage. Since it is the property of the service provider, these are also regulated and borne by him.

Free technology upgrades when renting with Lendis

At Lendis, we also offer an automatic hardware upgrade for selected product groups - e.g. laptops, smartphones and tablets. At the end of the initial rental period, customers automatically receive the latest model for their rented devices, ensuring they always work with the latest technology.

Advantage: Tax treatment

Operational expenses are recognized in the corresponding accounting period in which they are incurred. In this period, they reduce profit in full as costs. Investments in assets (CapEx) are not costs from either a business or tax perspective. Instead, there is a balance sheet asset swap from current assets to fixed assets. Costs are only incurred through the use of the asset and the resulting loss in value. The costs can be claimed for tax purposes in the form of depreciation in the respective period and reduce the profit accordingly.

How Lendis helps to convert capital into operational expenditure

Lendis is a professional lessor of office equipment. With our rental model, companies can reduce their capital expenditure and rent office furniture and technical equipment flexibly. Thanks to our comprehensive range, it is possible to rent the complete office equipment from a single source. This significantly reduces procurement costs. At the same time, accounting costs are also reduced, as all operating expenses for the equipment are bundled into one item.

As a full-service partner, Lendis takes care of most of the services associated with office equipment, such as the delivery and assembly of office furniture or the pre-installation of software on electronic devices. Customers receive automatic device upgrades for laptops, smartphones and tablets if the contract is continued after the initial rental period has expired. More than 800 customers are already benefiting from the advantages of flexible rental compared to purchasing. If you would like to find out more, please contact us at any time.

Make your personal appointment now to find out more about the advantages of renting with Lendis.