Capex and Opex: what is the best strategy for IT?

Find out what each means, the differences, the benefits, and which is the best option for IT investments.

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In the midst of financial and economic instability, reorganizing the company’s capital structure is essential for corporate governance.

It is essential that companies create a plan that takes into account the essential aspects related to development, such as knowing the sectors that require the most investments and the appropriate time to achieve them.

Even in this time of uncertainty, the main objective of companies is to continue investing in IT. However, accounting for these investments is an issue that can still be complicated for some professionals in the sector and this happens due to the lack of Understanding Capital Expenditures (CAPEX) and the operating expenses (OPEX).

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Capex means capital expenditure, which is directly related to the amount of resources used for investment in modernizing or expanding the company.

On the other hand, Opex stands for Operational Expenses and refers to the total value of resources needed for the operation of the company.

What are Capex and Opex?

Capex

They are investments linked to the purchase and acquisition of assets. In the case of IT assets this can happen for example with the purchase of equipment or software licenses.

Due to its operation, in this acquisition model, the company must make an initial investment to acquire the desired solution and have definitive possession of it. He is the owner and owner of that asset and is also responsible for its updating, maintenance, protection and control. 

At the end of its life cycle, when it is obsolete, outdated or no longer meets the company’s current needs, the organization itself must decide what to do with that asset.

These are some examples of Capex in the IT sector:

• • Computers and devices.
  • Hardware.
  • Server.
  • Property.
  • Teams.

Opex

While CAPEX represents the purchase of an asset, OPEX would be the trading of that asset as a service. 

In the universe of OPEX IT assets, there are basically three options available on the market:

• • Rental without service.
• • Operating leasing.
• • IT outsourcing.

Furthermore, with some relevant differences, other solutions can also be considered assets as a service, as in the case of cloud solutions.

In non-service leasing or operating leasing, the company rents the IT resources and is responsible for them maintenance and operation of such equipment throughout the term of the contract or subcontracts a company to perform this function.

In the case of IT outsourcing, the company not only contracts the assets “as a service”, but also contracts for an integrated level of services for maintenance, management, logistics, fleet availability, among other points.

Here are some examples of Opex in the IT sector:

• • Equipment maintenance.
  • Wages.
  • Rates ofice.
  • Administrative expenses.
  • Cloud services.

Capex and Opex: Which is the best option?

To choose appropriately it is necessary to take into account the economic outcome of the company and its consequences, such as cash flows, operating, financing and opportunity costs, as well as contractual ties, fiscal economics and the life cycle of projects.

It is also necessary to analyze the capital structure and understand the aspects related to capital immobilization, business risk, tax situation and the relationship with suppliers and resources.

For this reason, choosing between Capex and Opex will always require an internal analysis to identify the resources invested in technology and understand the expenses that both capital and operations entail for the company.

For example, we have activities limited by markets,

private creditors, in relation to capital expenditure. In these situations, the best solution is for investments to be directed towards income-generating activities, i.e. initiatives that rereduce Capex and improve Opex.

Benefits and impacts

To understand the benefits and impacts that derive from the choice between one or the other, it is essential to fully and deeply understand the management of the company linked to profitability policies.d of the chosen capital.

By analyzing this context and defining more appropriate objectives for each phase of the business, it allows corporate governance, which is its main responsibility, to help the sustainable development and performance of businesses.

Discover the benefits and impacts of Capex and Opex below:

• • When starting a Capex-based project, it is certain that, in the beginning, there will be a significant cash outlay; In Opex, however, the disbursement is normally monthly. What can make one mode more attractive than another is the opportunity cost of capital invested in each.
• • In tax terms, Opex is more attractive than Capex. This is because the tax deduction is significantly higher in the former, compared to the depreciation and opportunity cost in the latter, respectively.

• • Regarding company assets, expenses related to the acquisition of assets in Capex are fixed, while in Opex they are characterized as results during a project.

If we look at the current IT marketIn reality, we see that opting for leasing services (Opex) rather than purchasing products (Capex) has many more benefits and adds much more value to the business.