Capital Investment

The Capital investment involves funds into the business to assist it to expand in the Market. It basically refers to the money used to purchase fixed assets such as machinery, building, etc.

The capital investment also refers to the money invested in a business with the understanding that the money will be used to buy fixed assets, rather than used to cover the day-to-day expenses.

Objectives of Capital Investment

The major objectives of capital investments are as follows:

• Get additional capital assets for expanding, allowing the business to increase the production, create new products and add value.

• Take the privilege of new technology or advancements in equipment or machinery to augment Efficiency and reduce cost.

• Replace the existing asset that has reached the end-life.

Capital Investment and Economy

Capital Investments are very important to measure the health of the Economy. If businesses are making the capital investments, then they are assured of the future and intend to grow their businesses by enhancing the existing productive capacity. Recessions are normally linked with reductions in the capital investment by businesses.

Capital Intensive Business

Capital intensive businesses need a lot of investment in labor facilities, equipments along with repair and upgrade. The rail companies are capital intensive because it needs investment regularly for upgrades, rolling stock and other facilities. Some other investments are related to improving traffic, fuel efficiency and service.

Even a small business can be capital intensive. A landscape firm may also require substantial capital investment in machinery like backhoes, trucks or bulldozers.

The Capital Expenditures can vary from year to year due to several factors like the business cycle, the financial health of the business or one-off expenditures, such as emergency expenses due to natural disasters.

Non-Capital Intensive Business

Businesses that need healthy financial investment to start are capital intensive, whereas the companies that don’t need much finance to start or preserve are non-capital intensive. For instance, non-capital intensive businesses include consulting, software development, finance or any virtual business. These businesses don’t require much amount of facilities or equipment to invest or maintain.