AFL 3.33% 14.5¢ af legal group ltd

Capital expenditure is expenditure on capital items, i.e....

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    Capital expenditure is expenditure on capital items, i.e. property, plant, equipment. It's a lumpy cash outflow and it's smoothed through the P&L via depreciation, e.g. you buy some laptops for your lawyers this year but they can use them for the next 3 years.

    What you are referring to is the oft touted "investing for growth". It's operating expenditure, OPEX not CAPEX, i.e. marketing to build the brand, hire some lawyers who may not bring in much revenue in first year etc. There's no natural reason for those costs to decline in absolute terms if the business continues to grow. What investors typically hope will happen is that the rate of revenue growth in future years will exceed the rate of opex growth, thereby giving you operating leverage which drives your earnings growth. Whether that scenario will actually eventuate is what underlies your investment thesis.

    Accountants are readily disparaged but accounting is often described as the language of business and with good reason. Using the correct terminology is as important in investing as it is any other field. An imperfect analogy would be if I started talking about "organic growth" opportunities for AF Legal when in fact I'm referring to M&A. Btw I'm not an accountant.

 
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