Capital Investment Basics

Many investors consider capital gains and dividends as two separate concepts. However, capital gains and dividends are one in the same. To better understand this, we need to take a look at how dividends are calculated. Dividends are the payments received by a shareholder from the corporation’s profit or loss. Dividends are paid on a regular basis, either quarterly or annually, and are typically used as a means of receiving payment for the holdings of stock by the corporation’s owners.

Capital investments come in many forms, such as fixed assets like property and equipment and account receivable from customers. Another common form of capital investment is retained earnings. With retained earnings, the profits that would have been generated from the sale of an account receivable are invested in additional shares of stock in another company, called a partnership. The cost of capital investments typically represents the net worth of all the assets controlled or owned (in consolidated entities), less the current value of any outstanding loans, leases, and advances.

Capital investment refers to the transformation of cash into the form of value, usually in terms of an investment in fixed assets or accounts receivable. Examples of capital investments are current assets, inventory, accounts receivable, and machinery, and include the transformation of the payment of debts of a firm into investments in fixed assets, accounts receivable, or equipment. In addition, some forms of capital investment are made by transfer of control of a firm’s assets, such as purchasing property with financial assets, such as raw land, and transforming the property into accounts receivable with capital equipment. The other forms of capital investment, such as fixed assets, plant and equipment, and accounts receivable, are all transformed into their underlying value by conversion into cash.