Capital Investment

Published Jan 25, 2023

Definition of Capital Investment

Capital investment is the use of money to purchase physical assets such as buildings, machinery, or equipment in order to increase the productive capacity of a business. That means it is the process of investing in long-term assets that will generate income or profits over a given period of time.

Example

To illustrate this, let’s look at an imaginary small manufacturing company. This company produces widgets and has been in business for several years. However, the demand for its widgets has been increasing steadily, so the company decides to invest in new machinery to increase its production capacity. To do that, it purchases a new machine that costs USD 100,000 and will last for approximately 10 years. This is an example of capital investment.

Why Capital Investment Matters

Capital investment is an important part of any business. It allows companies to increase their production capacity and, thus, their profits. In addition to that, it also helps to create jobs and stimulate economic growth. That means it is an important factor for the overall health of the economy.

Furthermore, capital investment can also help to reduce costs in the long run, as new machinery and equipment often require less maintenance and are more efficient than their older counterparts.