What Is a Capital Investment?
Capital investment is the procurement of money by a company in order to further its business goals and objectives. The term can also refer to a company’s acquisition of long-term assets such as real estate, manufacturing plants and machinery.
KEY TAKEAWAYS
A capital investment is defined as a sum of cash acquired by a company to pursue its objectives, such as continuing or growing operations.
It also can refer to a company’s acquisition of permanent fixed assets such as property, plant and equipment (PP&E).
A capital investment can be made via several sources including using cash on hand, selling other assets, or raising capital through the issuance of debt or equity.
How Capital Investment Works
Capital investment is a broad term that can be defined in two distinct ways:
An individual, a venture capital group or a financial institution may make a capital investment in a business. A sum of money is handed over as a loan, or in return for a promise of repayment or a share of the profits down the road. In this sense of the word, capital means cash.
The executives of a company may make a capital investment in the business. They buy long-term assets that will help the company run more efficiently or grow faster. In this sense, capital means physical assets.
In either case, the money for capital investment must come from somewhere. A new company might seek capital investment from any number of sources, including venture capital firms, angel investors and traditional financial institutions. The company uses the capital to further develop and market its products. When a new company goes public, it is acquiring capital investment on a large scale from many investors.
An established company might make a capital investment using its own cash reserves, or seek a loan from a bank. If it is a public company, it might issue a bond in order to finance capital investment.
There is no minimum or maximum capital investment. It can range from less than $100,000 in seed financing for a start-up, to hundreds of millions of dollars for massive projects undertaken by companies in capital-intensive sectors such as mining, utilities and infrastructure.
Source: https://www.investopedia.com/terms/c/capital-investment.asp