Investment refers to the allocation of money in the hope of some future benefit. In the world of finance, the profit of an investment is known as a return. The return may consist of a gain (or loss) from property or securities sales, unrealized capital appreciation (or depreciation), or investment income such as dividends, interest, rent income, etc., or a mixture of capital gain and income. Capital investment is referred to as the money that is invested in a business with the expectation of purchasing fixed assets with that money, rather than to fund the normal operating expenses of the company.
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1. Human Capital Investment Template
2. Capital Investment Annual Report
3. Capital Investment Funds
4. Finance Capital Investment Template
5. Venture Capital Investment Template
6. Strategic Capital Investment Project Planning
7. Venture Capital Clean Energy Investment Template
8. Capital Investment Analysis Project Assessment
9. Capital Investment Tax Credit
10. Capital Investment Price Uncertainty
11. Capital Investment Review
12. Capital Investment Application Form
Objectives of Capital Investment
A business typically has three main reasons for making capital investments:
- To obtain new capital assets for growth, enabling the company to increase unit output such as create new products or add value.
- To benefit from new technology or advances in machinery or equipment to improve productivity and reduce costs.
- To substitute current assets that have approached the end of their lives, for instance, a high-mileage delivery vehicle or an aging laptop computer.
Capital Investment and the Economy
Capital investment is deemed a rather important metric of the economy’s health. When companies make investments in capital, this means that they are confident in the long term and plan to develop their industries by improving the current productivity. Companies normally associate recessions with cuts in capital investment on the other hand.
Types of Capital Investments in Businesses
There are two types of capital investments in businesses:
1: Capital Intensive Businesses
Capital-intensive companies require a great deal of investment in areas including manpower, infrastructure, machinery, maintenance, and upgrades. Rail companies are usually extremely capital-intensive, needing frequent investments in line improvements, rolling stock and facility development. However, in some cases, even small businesses can be capital intensive. A small earth-moving or landscaping firm, for instance, may require a substantial capital investment in machineries such as bulldozers, backhoes, or trucks. Remember that capital spending will vary dramatically from year to year due to several factors like the business cycle, the business ‘ financial health, and one-off spending, such as natural disaster emergency expenses.
2: Non-Capital Intensive Businesses
Non-capital intensive businesses do not seem to need much monetary investment to survive. Types of non-capital intensive businesses involve accounting, software development, finance or any kind of virtual enterprise. Such companies do not have large quantities of equipment or infrastructure to invest in or maintain.
Types of Capital
Capital is generally of three types:
1: Financial Capital
Debt and equity are common forms of financial capital. Debt is a credit or financial obligation which will have to be repaid in the future. It has added an interest expense which is the cost of borrowing capital. The money earned from borrowing money can then be used to buy an asset and finance business operations, which in turn generates income for a company. Equity is an interest in a company’s ownership, and equity investors may earn the company’s residual value if it is sold or injured. Unlike lending, it doesn’t have to be repaid and has no direct interest expense.
2: Human Capital
Enterprises use human capital to produce products and perform services that can be used to increase revenue for the enterprise. Organizations do not “own” individuals they do other things in their way. Intellectual and skills/talents are the commonest types of human capital. Intellectual capital is referred to as the intelligence of people which can be used to run a business effectively, think creatively, resolve issues, shape strategies, and surpass competitors. Abilities and skills are used to help a company work and generate revenue in much the same way as intelligence. Skills need not always require mental capacity and may include manual work, physical effort, social influence, etc.
3: Natural Capital
Companies can also use natural capital to generate revenue and increase production. Most businesses take advantage of natural resources such as water, wind, sun, livestock, trees, plants and crops to run their business and increase value over time. Businesses might or might not own the biological assets which they need to operate.
4: Cultural Capital
Perhaps one of the most intangible forms of capital is cultural capital. It has to do primarily with the mentalities, values, and philosophy a family carries forward generation after generation. These customs often revert to just one or two generations at most. Finding families with stories that reach farther back than that is rare. When families do endure, however, their stories contain expressions of family values within them.