Which of the following statements about capital expenditures is correct?

Which of the following statements about capital expenditures is correct?

• A. They always increase with company growth
• B. They should be minimized at all costs
• C. They fluctuate with business needs and growth stages
• D. They are not related to company health

Answer: (C)

The statement that capital expenditures fluctuate with business needs and growth stages is correct. Capital expenditures, or CapEx, are the funds used by a company to acquire, upgrade, and maintain physical assets. These expenditures can vary significantly depending on a company's current operational requirements and its development phase. For instance, in a growth stage, a company might need to invest heavily in new equipment or facilities to expand its production capabilities or meet increased demand. Conversely, during a phase of consolidation or stabilization, the same company might limit its capital expenditures as it focuses on improving efficiency and managing existing assets. This variability reflects how capital expenditure decisions are directly tied to strategic business planning and market conditions, making them essential for adapting to changing business landscapes. This flexibility in capital expenditures is crucial for a company’s ability to respond to growth opportunities and market demands effectively, highlighting their importance in financial planning and business strategy.

The statement that capital expenditures fluctuate with business needs and growth stages is correct. Capital expenditures, or CapEx, are the funds used by a company to acquire, upgrade, and maintain physical assets. These expenditures can vary significantly depending on a company's current operational requirements and its development phase.

For instance, in a growth stage, a company might need to invest heavily in new equipment or facilities to expand its production capabilities or meet increased demand. Conversely, during a phase of consolidation or stabilization, the same company might limit its capital expenditures as it focuses on improving efficiency and managing existing assets. This variability reflects how capital expenditure decisions are directly tied to strategic business planning and market conditions, making them essential for adapting to changing business landscapes.

This flexibility in capital expenditures is crucial for a company’s ability to respond to growth opportunities and market demands effectively, highlighting their importance in financial planning and business strategy.