Looking from an income tax perspective, businesses usually prefer OpEx to CapEx.
For example, rather than buying laptops and computers outright for $550 to $1000 a piece, or a server for $20,000, a business may prefer to lease those items from a vendor for around $300 each for 3 years. Buying business equipment is a capital expense. So even though the company pays $800 upfront for the equipment, it can only depreciate around $250 as an expense in that year.
However with leasing, the entire amount of $300 paid to the vendor for leasing is operating expense because it is part of normal business operation. The company can expense and deduct the cash it spent that year.
The advantage of being able to write off expenses is that it reduces income tax, which is figured on net income. One other advantage is the value of money over time, if your cost of capital is 7% then saving $100 in taxes this year is better than saving $107 in taxes next year.
But tax savings may not be a business's only need. If a traded company wants to up its profit and book value, it may opt to make a capital expense and only deduct a portion of it as an expense. The result is a higher asset on the balance sheet, and a higher net profit that it can show investors.
Ever considered leasing an automobile instead of buying one?
To compare buying a car versus leasing a car is to compare the differences between capital expenditures and operational expenditures. When you buy a car outright, you’re using existing capital to pay for it. You’re not completely sure how long you’ll own it, but you know that you’ll likely need a mechanic for basic maintenance like oil changes....