Capital investment is defined as the expenditure that may be incurred by a business organization in order to purchase machineries and other fixed assets. This expenditure is normally beneficial as it lays the foundation for future investments of similar kind.
There are several uses of capital investment in the business circle. To start off capital investment primarily suggests the money that may be required for the companies to buy tangible assets like land, buildings or machines. Capital investmentalso implies the amount of money, which is required to purchase long-term assets besides the amount that is required for daily running of the business.
Capital investment is also known as venture capital in the business circles. An important aspect of capital investment is capital spending.
Capital spending is normally performed for categories that are expected to last for more than a single year. The value of the assets being bought with capital spending is supposed to be important as far as the preparation of the cash flow statement is concerned.
The basic idea behind any investment is to increase the assets of a particular business unit, be it an individual or a company, has. Any form of capital investment helps the particular investor to increase both the rate and amount of his output.
As per the capital investment plans the companies spend primarily on buying new plants or equipments that may be related to their field of work. Nowadays, the number of investors willing to opt for the medium of capital investment is on the rise.
The phenomenon of working capital is relevant in the context of capital investment as well as determining a company’s operational status. The efficacy of operations of a company is normally inversely proportional to the building up of working capital. Methods like Net Present Value and Internal Rate of Return are employed when the proposals for venture capital investments are judged.
Last Updated on : 5th July 2016