Capital expenditures are major purchases, such as facilities and equipment which make the company to maintain or expand its operations. Because such purchases involve the purchase of assets that provide value and usefulness for several years, the company to reimburse the cost of these acquisitions gradually depreciating assets over time.
As a rule, companies are not allowed to deduct the costs of capital expenditures in the year the costs were incurred. Consequently, significant outlays of capital required for such purchases must be carefully planned out, usually within a few years, so the company can avoid overextending themselves financially, create problems of cash flows. For capital intensive companies, the effective management of capital expenditures is crucial for survival and growth, as it requires a proper balance between their needs for resources necessary for the operation and expansion of their activities and their ability to generate revenue or obtain financing.
Companies that continuously have the highest capital costs, of course, those operations that continued investments in expensive things such as land, facilities, infrastructure and the basic production equipment. Energy companies and telecommunication companies have traditionally topped the list.
Energy companies can be divided into oil, gas and coal companies that explore, receive, and clarify the sources of energy and power companies that deliver energy to businesses and individuals. Both the energy sector needs to make regular substantial capital investments – oil and gas producers to equipment required for extraction and processing of natural resources, and power companies in the massive infrastructure necessary to deliver energy. As energy companies, telecommunications companies require constant investment in infrastructure in addition to research and development and production.
Another industry that consistently high capital costs is transportation, which includes airlines, Railways, and car manufacturers. Airlines must regularly replace its fleet of aircraft, and auto manufacturers invest huge amounts of capital into research and development in addition to the equipment required for the production of their cars.
Other capital-intensive industries include manufacturers of computers, Healthcare, Construction and hospitality.