What is a Capital Investment

1. What is a Capital Investment

So let's make sure that we understand what a capital investment is, essentially, it's an investment for which the economic benefit is greater than one year. So there are lots of examples of capital investments. For one, we could decide to open up a new factory, for example, we could also enter into a brand new market, or we could go and acquire another business. Finally, we might look at R&D or research and development of new products. Now, while this is not an exhaustive list, it gives you an idea of some investments which would have an economic benefit greater than one year. Now capital investment, and one thing to keep in mind is that capital investment will increase the assets of a company. And how would the company fund this investment exactly? Well, it would do that through a mix of debt and equity, either both the debt and the equity would increase, or one of them would increase. So later in the course, we'll talk about how companies decide between the mix of debt and equity. But for now, what we want to understand is simply that capital investments will always increase the assets for a corporation.

2. Let's practice!

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