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What Are the Different Types of Capital Investments?

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  • Written By: Helen Akers
  • Edited By: Jessica Seminara
  • Last Modified Date: 17 September 2016
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Capital investments can consist of physical property or the substantial influx of cash into another company through the purchase of stocks or bonds. Physical assets such as buildings, land and equipment are considered to be capital investments as they are used over a long period of time. These types of investments require a more substantial amount of funds to secure and the expense is deducted through depreciation or some other means over a certain lifespan. A business might also make a capital investment in another company through the purchase of equity or debt in large enough amounts to fund a major project or help with start-up costs.

Physical property in the form of buildings, land, fleet vehicles, machinery, and improvements to land are capital investments that are fixed assets. They are considered to be fixed as they are not typically resold within a short time frame. Fixed assets might be used throughout the lifespan of the business or until they are no longer functional.

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Depending upon market conditions, some companies do not find it feasible to make a large amount of capital investments in physical property. Some lease the physical assets they would otherwise purchase. Short-term leases are not treated like capital investments; however, long-term leases are. For office equipment and vehicles, short-term leases might be good alternatives in order to avoid the costs and wear and tear associated with long-term ownership. Commercial real estate leases are an example of a potential capital investment lease if the term length exceeds a certain amount of years.

Investing in other companies by providing substantial funds in exchange for stocks, bonds or another form of investment return, is also considered to be a capital investment. A company may purchase preferred shares in another company. Preferred shares give the investor certain rights when dividends are declared or in the event that the company becomes insolvent. Since shares represent an ownership stake in the company, this type of capital investment typically comes with voting rights and possibly participation in company decisions as an executive advisor.

Bonds purchased in large quantities are another potential source of capital investments. Sometimes a company will issue public or private debt in order to finance its operations. Debt does not contain ownership rights for the investor, so this leaves more control in the hands of the company. A bond is simply a promise to return the investor's funds at a future date along with interest payments.

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