A capital investment is the acquisition of a fixed asset that is anticipated to have a long life of use before it has to be replaced or repaired. Two of the most easily recognizable examples of these types of investments are land and buildings. However, a capital investment is made any time that a company purchases goods that will be benefit the operation of the business, but will not be used to cover the operational costs of the business.
Of course, a capital investment does not have to be an asset that is along the lines of equipment or land. It can be something as simple as an amount of money that is set aside in some sort of interest bearing account. Since the resource is not being used to cover business expenses, capital assets of this type is free to be used for the purpose of generating additional revenue by accruing interest. Thus, it would be proper to consider an initial amount of money that is used to open a standard savings account as a capital asset, with the fact that a rate of interest will be realized from the principal each year turning the asset into a capital investment.
Many people think that in order to qualify as identification as a capital investment, the asset must be an item with a great deal of initial worth. In fact, fixed assets may carry any type of inherent worth. The main characteristic of a capital investment is not meeting some basic current value, but the fact that the item is not required for the normal expenses associated with daily living or business operation. Even the component of realizing some sort of interest is not necessarily a qualification for being understood as this type of investment. Money that is kept in a piggy bank or under the mattress would still qualify as a capital investment, since the money (a) is expected to have a long usable life, and (b) is not required to maintain daily operations of a business or the home.
