Guide
Glossary of processing capex terms
Plain-language definitions of the finance and operations terms that come up in fruit and vegetable processing capital decisions, from loaded labor rate to IRR.
By Dan Ghadiri · Updated · 7 min read
Key takeaway
Plain-language definitions of 33 terms that come up when a fruit or vegetable processing plant evaluates capital equipment: returns, costs and savings, operations, and project and compliance terms.
Short, plain definitions for the terms that come up in capital requests and supplier proposals. For worked methods, see How to build a capital equipment ROI case and Payback, NPV and IRR explained.
Returns
- Capital expenditure (capex)
- Money spent on long-lived assets such as equipment, installation and building work, recorded as an asset and depreciated over time rather than expensed at once.
- Operating expense (opex)
- Ongoing costs of running the plant, such as labor, energy, water, chemicals and maintenance.
- Simple payback
- Capital cost divided by annual net savings: the number of years until cumulative savings equal the investment, ignoring the time value of money.
- Simple ROI
- Annual net savings divided by capital cost, expressed as a percentage. The reciprocal of simple payback.
- Net present value (NPV)
- The sum of all future cash flows discounted to today at a chosen rate, minus the investment. Positive NPV means the project earns more than that rate.
- Internal rate of return (IRR)
- The discount rate at which a project's NPV equals zero.
- Discount rate
- The annual rate used to convert future cash flows into today's dollars, usually set by finance from the cost of capital plus a risk margin.
- Hurdle rate
- The minimum return a company requires before approving a project; often used as the discount rate for NPV.
- Discounted payback
- Payback calculated on discounted cash flows. Always longer than simple payback.
- Sensitivity analysis
- Recalculating results with key assumptions changed, such as half the expected savings, to see how robust a decision is.
- Total cost of ownership (TCO)
- All costs of an asset over its life: capital, installation, energy, utilities, labor, maintenance, wear parts, downtime and removal.
- Depreciation
- The accounting allocation of an asset's cost over its useful life. A non-cash expense that affects taxable income.
- Salvage value
- The expected value of equipment at the end of its useful life, net of removal costs.
Costs and savings
- Installed cost
- The full cost to put equipment into production: equipment, freight, rigging, installation, utility tie-ins, controls integration, commissioning, training and changeover downtime.
- Loaded labor rate
- Hourly wage plus burden such as payroll taxes, workers' compensation and benefits.
- Person-hours
- Number of people multiplied by hours worked. The unit used to measure labor savings.
- Yield
- Saleable output as a share of input weight at a given step or across the line.
- Yield point
- One percentage point of yield. On 10,000,000 lb of input, one point is 100,000 lb.
- Peel loss
- Weight removed during peeling, including skin and any flesh removed with it.
- Energy delta
- The difference in electricity, gas or steam use between current and new equipment. Can be a cost rather than a saving.
- Demand charge
- A utility charge based on peak electrical demand (kW) rather than energy used (kWh). Large new motor loads can raise it.
- Wear parts
- Components replaced routinely through normal use, such as rollers, belts, blades and seals.
Operations
- Throughput
- Output rate of a line or machine, usually in pounds or tons per hour.
- Overall equipment effectiveness (OEE)
- Availability × performance × quality: the share of planned production time that is truly productive.
- Changeover
- The time and work needed to switch a line between products, sizes or packaging formats.
- Bottleneck
- The step that limits the throughput of the whole line. Upgrading a non-bottleneck step rarely increases output.
- Operating season
- The weeks a seasonal plant runs on fresh crop. Annual savings should reflect the real season, not a full year.
Projects and compliance
- Factory acceptance test (FAT)
- Testing equipment at the supplier's facility against agreed criteria before shipment.
- Site acceptance test (SAT)
- Testing equipment at the plant after installation against the same agreed criteria.
- Commissioning
- Bringing installed equipment into stable operation: checks, adjustments, trial runs and handover.
- Clean-in-place (CIP)
- Cleaning equipment internally with circulated solutions without disassembly.
- Sanitary (hygienic) design
- Designing equipment so it can be cleaned and inspected effectively, without harborage points. 3-A Sanitary Standards and EHEDG guidelines are common references.
- Lockout/tagout (LOTO)
- Procedures to isolate energy sources before servicing equipment, governed in the US by OSHA 29 CFR 1910.147.