Capital Investment refers to the spending of funds in an organization for the long-term benefit of the business. This includes the acquisition of intangible assets and tangible assets that will yield benefits in the future. While working capital is the money used to fund short-term expenses, capital investment is used to build long-term assets. By subtracting current liabilities from current asset totals, this metric provides an estimate of the business’s cash resources.
The primary advantage of capital investment over working capital is the long-term flow of economic benefit it provides a business. It also helps to eliminate unemployment as heavy investments require manpower and other necessary resources. The downside is that capital investments usually require a high initial investment, but the rewards can be realized for several years. Moreover, these types of investment can be beneficial for public relations, as they create employment and reduce unemployment. In addition, these investments are generally one-time investments.
In addition to providing a competitive edge, capital investment allows businesses to offer better goods and services to their customers. However, investing in these assets also increases the cost of running a business, since the financial institution has to charge interest for loans. A significant downside to capital investment is that it raises risks for the company. The risk of failure in a capital asset can cause financial loss, which means that it can lead to a decrease in profits and unemployment.