Types of costs, expenditure, and working capital

Covering Assessment Criterion 1.1 of FREE03 – People Professionals and Finance, this video addresses several of the core financial concepts that arise in organisational budget discussions and spending approval processes. The specific territory includes the distinction between fixed and variable costs, the difference between capital expenditure (CapEx) and revenue expenditure (OpEx), depreciation, and working capital. Rather than treating these as abstract accounting terms, the video situates them within contexts familiar to people professionals, such as decisions about workforce composition, recruitment spending, training delivery, and learning technology investment.

The video examines fixed costs — including permanent salaries, rent, insurance premiums, and software licence fees — alongside variable costs such as agency worker fees, overtime payments, and sales commissions, and considers how the choice between permanent and flexible workforce models maps onto these cost structures. It then moves to capital versus revenue expenditure, explaining how most people-related spending, covering areas like salaries, recruitment fees, and training delivery, sits within revenue expenditure, while larger infrastructure investments may qualify as capital spend. The accounting treatment of depreciation is also addressed, with reference to how annual depreciation figures appear in the profit and loss statement and how accumulated depreciation affects asset values on the balance sheet.

Working capital — calculated as current assets minus current liabilities — receives dedicated attention, with the video identifying cash, debtor balances, and stock as current assets, and supplier payables, accrued wages, and tax obligations as current liabilities. The video illustrates how working capital constraints can directly influence people decisions, including recruitment freezes, training deferrals, and pay review delays, even in organisations that are trading profitably. A leadership development programme is used to demonstrate how fixed costs, variable costs, CapEx, revenue expenditure, profit and loss impact, and working capital considerations can all converge within a single people initiative.