Interesting, I had not thought about things this way before.
It seems uncontroversial that we should value assets which can be used over the long term more highly then those which canât, all else being equal, but I mostly see people modeling this by amortizing them with some constant discount rate. I am vaguely aware of that accountants instead classify expenses as opex vs. capex but honestly couldnât explain to you why thatâs better.
I guess you are saying that it is useful to do so because, heuristically, you should prefer to cut investment in opex before cutting investment in capex?
Capital expenditure is money spent on an asset which can reasonably be assumed to generate future value for the entity either by increasing productivity or reducing costs. Expenses (including both cost of program/âoutcome and overhead costs) wouldnât really be an investment, itâd be a cost for something that doesnât have the ability to generate future returns or reduce the future marginal expenditure needed to generate the outcome again.
High quality assets like content, software and infrastructure can generate passive impact with minimal maintenance. Eg. 80k and Scott Alexanderâs content are still cited as the most common sources for new GWWC pledges.
Employees arenât usually considered assets for external financial reporting purposes because they are not owned by the shareholders and are free to leave. However, for a movement of people who all share ownership of EA and are not tied to any one cause area or charity, I think they can reasonably be defined as assets and a key insight from 80k is that for those with a motivation to do good effectively, there is a clear incentive to invest in your own career capital (as well as positive sum to invest time multiplying the impact of others).
The highest value assets IMO are EAs that can demonstrate a strong ability to apply the core skills (ie. cause prioritisation, impact evaluation and reasoning about evidence) AND can independently contribute. Iâve been somewhat concerned about the reduction in opportunities for low investment contribution since I donât think passive consumption of content is as effective for building EA knowledge that can be applied on high impact projects. The purpose of providing these opportunities (like wiki contributing, encouraging running events, volunteering etc) is more about investing in future capacity of EAs than the direct impact.
More detailed accounting answer you can skip đđť
Capex isnt an expense as it doesnât go through the income statement (AKA Profit and Loss statement ie. part of the accounts focused on annual finance performance). Capex creates an asset that sits on the statement of financial position (AKA balance sheet ie. part of the accounts focussed on the value of the business/âcharity).
Capex doesnât go through the income statement all at once, rather the costs go through incrementally as depreciation (where there is a clear useful life of the asset like machinery or equipment) or as amortization (this is less useful for charities as itâs mostly for tax purposes). The accounting problem this solves is that putting the full cost of the asset through the income statement all at once in the year of purchase is not a fair representation of the economic reality for the business since it isnât an expense for that one year.
Interesting, I had not thought about things this way before.
It seems uncontroversial that we should value assets which can be used over the long term more highly then those which canât, all else being equal, but I mostly see people modeling this by amortizing them with some constant discount rate. I am vaguely aware of that accountants instead classify expenses as opex vs. capex but honestly couldnât explain to you why thatâs better.
I guess you are saying that it is useful to do so because, heuristically, you should prefer to cut investment in opex before cutting investment in capex?
Yes thatâd be my sense.
Capital expenditure is money spent on an asset which can reasonably be assumed to generate future value for the entity either by increasing productivity or reducing costs. Expenses (including both cost of program/âoutcome and overhead costs) wouldnât really be an investment, itâd be a cost for something that doesnât have the ability to generate future returns or reduce the future marginal expenditure needed to generate the outcome again.
High quality assets like content, software and infrastructure can generate passive impact with minimal maintenance. Eg. 80k and Scott Alexanderâs content are still cited as the most common sources for new GWWC pledges.
Employees arenât usually considered assets for external financial reporting purposes because they are not owned by the shareholders and are free to leave. However, for a movement of people who all share ownership of EA and are not tied to any one cause area or charity, I think they can reasonably be defined as assets and a key insight from 80k is that for those with a motivation to do good effectively, there is a clear incentive to invest in your own career capital (as well as positive sum to invest time multiplying the impact of others).
The highest value assets IMO are EAs that can demonstrate a strong ability to apply the core skills (ie. cause prioritisation, impact evaluation and reasoning about evidence) AND can independently contribute. Iâve been somewhat concerned about the reduction in opportunities for low investment contribution since I donât think passive consumption of content is as effective for building EA knowledge that can be applied on high impact projects. The purpose of providing these opportunities (like wiki contributing, encouraging running events, volunteering etc) is more about investing in future capacity of EAs than the direct impact.
More detailed accounting answer you can skip đđť
Capex isnt an expense as it doesnât go through the income statement (AKA Profit and Loss statement ie. part of the accounts focused on annual finance performance). Capex creates an asset that sits on the statement of financial position (AKA balance sheet ie. part of the accounts focussed on the value of the business/âcharity).
Capex doesnât go through the income statement all at once, rather the costs go through incrementally as depreciation (where there is a clear useful life of the asset like machinery or equipment) or as amortization (this is less useful for charities as itâs mostly for tax purposes). The accounting problem this solves is that putting the full cost of the asset through the income statement all at once in the year of purchase is not a fair representation of the economic reality for the business since it isnât an expense for that one year.