Capital investment we know is the expenditure which a business entity incurs to gain, construct an asset or a property during its business course, in which, the gains and profits from such expenditure lasts long and such kind of investments is for the better functioning of the activity of a business.
It may sound very easy and simple; however, the mechanism of capital investment funds is much deeper than simply purchasing things and items with money. A lot of components and factors need to be taken into consideration before a general businessman or a sound economist would see through it first before they indulge in their worthful resources.
Capital investment funds in the case of business management might relate to both intangible and tangible items. Tangibles are machinery or buildings, manpower, supplies, equipments etc. while the intangible items are things like capital investment bonds and securities like stock options that financially influence a particular venture or a business.
Capital investment funds in economics might relate to the rates of interest and influencing the business overall in a certain sector. As against the general belief that capital investment funds here might relate to the production overall, the capital in itself is regarded as a stock, that has the ability of creating a bigger interest rates, and that depends upon the fact as to how the stocks move in the market.
Capital investment funds in the financial market would be centred on the acquirement of liquid assets and some other kinds of securities like shares and monetary securities. It could be misinterpreted that the money that is in the banks, saved for interest earning might also be regarded as a capital investment fund because of the fact that it is savings. Capital investment funds would be noted with the crucial idea that the value of capital investment funds fluctuates in the market, like that of securities or shares that have a holding.
Capital investment funds in real estate is quiet straightforward because the money here is used for purchasing properties or simply renting a property for productivity measures or general use. Real estate value varies and depends on the shift in the market. A less risky and more suitable branch of capital investment funds in property related real estate is to concentrate on the holdings of real estate in the residential sector. Capital investment funding is executed between the lending bank and a private proprietor.
Capital investment funds are generally needed in these three cases:
- Fixed Capital: Fixed capital investment funds are the funds to need for your business to purchase fixed assets. It means that one needs
the fixed capital investment funds to purchase things like machines, buildings, computers, furniture, vehicles etc. These things are generally bought to be used in the business and are not meant for reselling. The aim is to yield sales. These items don’t have a resale value, thus, one canliquidated them again if he wants to, but these things lose their value over a period of time in most cases, which is termed as depreciation. The only thing which does not depreciate is land. Fixed assets are taken in to account in the company’s balance sheet. When you are planning for your business, it is important for you to understand the capital investment funds you would need to buy these fixed assets. This capital investment fund would be then fixed and would not be there orusable for anything else. It should be noted that there generally is a cost associated in getting this kind of a capital investment fund and this would restrict the amount which you can vindicate, hence planning your fixed assets carefully is hence necessary.
- Working Capital: Apart from purchasing assets needed for a business, you’d also require cash for running the business. Working capital would yield
you profits.Working capital investment fund is for purchasing things like electricity, paying wages, buying raw materials etc. As one might not have outright money available with them and the income from salestoo is not sufficient always, it’s very important to plan the money supply. To understand the amount of money you would need and at the stages you would need it at, you would need to compose a statement for cash flow. It should be kept in mind that working capital investment fund isn’t profit; it’s the amount of money which is needed to yield longterms profits.
- Growth Capital: Growth capital turns up when a business, which is existing in nature, changes direction or expands, e.g., a TV cabinets manufacturer, who has a small business discover that his business scales by leaps in a short period of time. Thus, as the orders keep piling in, the business would require a healthy infusion of cash for increasing the size of its plant, to meet the increasing demand. This is where he needs growth capital investment funds.
There are 2 important sources of business funding, equity financing and debt. The difference in the both of them is the fact when debt financing, the person who lends money doesn’t gain ownership or have a say in the everyday business operations. Nevertheless, the price of this advantage is the interest you have to pay on the some of money that you borrowed, whereas there is no interest involved normally in the case of equity financing, however you may have to let go of a particular share percentage in ownership.
The four important phases for capital investment funding are:
- Planning
- Capital evaluation or project
- Status reporting
- Reviews post completion
A great planning of capital investment funds would improve the asset acquisitions timing and the purchased assets quality. Because the capital goods production involves a very long period of process, waiting of one or more year could be required before the extra capital goods are usable. One more reason for planning of capital investment funding is that expansion of asset generally involves a significant amount of expenditure. An organization contemplating a huge expenditure of capital might have to plan its funding or financing many years before, so it can be sure that they have the capital investment funds they might need years later for its growth and expansion.