Capital Investment
Capital Investment refers to the purchase of cash by an organization in order to further its corporate goals and objectives. However, Capital Investment does not always mean injecting new funds into an organization. Instead, it generally refers to the purchase of fixed assets by an entity for the purpose of leveraging financial resources to achieve short-term goals and objectives. For example, the purchase of manufacturing plants by a corporation to bring the manufacturing process closer to market needs can be considered Capital Investment. The purchase of real estate can be viewed as Capital Investment when the purchase is made to create more space for businesses to grow.
When a corporation or a business makes Capital Investments, they are using their financial resources to make future payments to other financial institutions. Examples of Capital Investments could be purchases of property, equipment, office buildings and facilities or real estate acquisitions. There are many types of Capital Investments including those made by public organizations like banks, insurance companies and pension funds. Capital investments can also be made by private individuals, although these types of Capital Investments tend to yield a lower return on investment than those made by financial institutions. Examples of such private funding sources include individual savings, stocks and bonds.
One of the primary purposes of Capital Investment is to provide an entity with a method of raising funds. In doing so, Capital Investment yields a positive cash flow (cash flow that results in a profit) for the owners of the assets making the investment. Since most businesses take many years to mature and generate sufficient profits from their operations before they are purchased for sale, most firms need to raise Capital Investment on a regular basis in order to meet their financing needs. Many firms will sell some of their assets as collateral for loans from banks and other large financial institutions, leaving the remaining assets as financial reserves for the firm.
