Calculating net investment in capital assets

To every investor, it is of paramount importance to know how the world of finance works up to a certain extent. When you are the owner of come capital assets, it really would pay to know how to calculate your net investments in capital assets.

WHAT IS NET INVESTMENT?

Net investment is simply the money spent in the purchase of capital assets. Ordinarily, an investment is about the purchase of goods that are meant to develop over time and yield profits enough for wealth creation. When a person or company makes an investment, the person or company is known as an investor. The aim of an investor is to spend money in the purchase of assets (properties owned by a person or a company regarded as valuable to meet needs such as debts, commitments, or legacies) with the idea that in future, it will become a means of viable income, or it can be sold out at a much higher value thereby generating some profits for the investor. Net investment income is usually money spent in the procurement of an asset, and it usually does not have to do with just a single asset, going by the term “net”.

WHAT IS A CAPITAL ASSET?

Capital assets are simply are significant pieces of properties such as houses, cars, bonds, stocks, etc. One thing about assets is that their values keep increasing with time. Take an office apartment for instance, while it serves the purpose of housing workers during work hours that generate income for their owners, it would even generate more income if it sold after some time; that is if there is no such unfortunate incident like fire outbreak, but then, there is insurance.

CALCULATING NET INVESTMENT OF CAPITAL ASSET

In calculating the net investment of capital asset, one has to be familiar with terms like

  • Appreciation: Increase in the value of an asset over time

  • Depreciation: Decrease in the value of an asset over time

  • Gross investment: The total value in investment that does not allow for any loss

  • Productive capacity: Maximum possible output of an investment or economy

There are other important terms but these few will enable anyone understand the results from calculating the net investment of capital asset. If the gross investment is always more in value than depreciation, there will be a positive net investment indicating that the productive capacity is appreciating. On the other hand, if the gross investment value is always lower than depreciation, it will yield a negative net investment, an indication that the productive capacity of the investment is decreasing.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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