Capital Investment Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Capital Investment, written in plain English, along with examples of how it is used.
What is Capital Investment?
(n) Capital Investment is the expenditure incurred by a business entity to acquire, construct a property or asset during its course of business wherein the benefits from such expenditure is enduring in nature and such investments are used for better performance of the business activity .
History and Meaning of Capital Investment
Capital investment, in simple terms, refers to the money spent by a business enterprise to acquire or upgrade assets like land or equipment with an aim to improve its production efficiency or expand its operations. These investments are generally long-term in duration and are made with the expectation of earning future returns. Capital investment has been an integral part of business activities since time immemorial.
Investopedia states that capital investment is often associated with long-term projects that can generate revenue over a prolonged period. While short-term investments may yield quick returns, capital investment is aimed at steady returns over the long haul. Capital investments are of two types - tangible and intangible. Tangible investments include asset purchases like real estate or machinery, while intangible investments include software and patents.
Examples of Capital Investment
- A manufacturing unit decides to purchase new machinery to increase its production capacity. The cost involved in buying the machinery, preparing the land to house the machinery, and the installation charges are considered capital investment.
- An e-commerce firm decides to build a new warehouse to store its products. The cost involved in acquiring the land to build the warehouse, constructing the warehouse, and the installation of the necessary machinery and equipment can all be considered capital investment.
- A small business owner decides to invest in a new website to market and promote their products. The cost involves the creation and design of the website, the hosting and server expenses, and other related costs.
Legal Terms Similar to Capital Investment
- Capital Expenditure: This refers to the money spent on acquiring, improving or maintaining long-term fixed assets of a business.
- Operating Expenditure: This refers to expenses incurred regularly as part of a business's everyday operations, such as salaries, rent, and utilities.
- Working Capital: This refers to the funds available to a company to finance its day-to-day operations, like paying salaries, rent, and utility bills.