Capital Accumulation - Explained
What is Capital Accumulation?
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Table of ContentsWhat is Capital Accumulation?How does Capital Accumulation Work? Corporate Capital AccumulationInvestment Capital AccumulationAcademic Research on Capital Accumulation
What is Capital Accumulation?
Capital accumulation refers to a rise in the value of an asset as a result of investment or profits generated. The sole aim of capital accumulation is to create profit or revenue for a company. Therefore, when a business acquires assets that will generate value or make investments that generate profit, it is capital accumulation. There are a number of ways that business and individuals accumulate capital, for instance, a business can generate value from an asset through rent, capital gains and interests. Making investments is another way to achieve capital accumulation.
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How does Capital Accumulation Work?
Generally, assets, whether tangible or intangible generate profit for a company. Investment also attract rate of returns that in turn increase the capital held by a company. Through capital investment, individuals and companies can accumulate capital. For instance, an individual who invests in a company do so for the exchange of profit. A company can invest in stocks, bonds or acquire another company to accumulate capital. Return on Investment (ROI) is another avenue companies and individuals generate wealth. Investment assets which entails increasing the holding of valuable assets by a company is another way of accumulating capital. Other ways of accumulating capital is through investment savings and purchase.
Corporate Capital Accumulation
How healthy a company is financially is known through its financial statement. Primarily, most companies generate capital from sales of products and rendering of services. However, this is not enough to achieve capital accumulation, companies who seek to accumulate wealth devise other means such as investment savings and purchases, investment assets and others. The capital accumulation of a company can be known through its cash flow statements of financial statements. Profits that significant generate capital accumulation for a company are also detected through the income statement.
Investment Capital Accumulation
Another major way companies accumulate capital is by investing in bonds, stocks, assets and other securities. The gains or returns realized from these investments contribute to the company's capital accumulation. Investment capital accumulation refers to capital generated from interest on savings, return on investments, and capital gains. Companies who invest a lot have more advantage when it comes to higher capital accumulation. Not only do companies seek to have greater capital accumulation, individual investors are also keen of generating more wealth. Oftentimes, investors create diversified portfolios for the purpose of capital accumulation. Investors use brokerage accounts, 401k plans and other diversified accounts for capital accumulation, another set of people that seek capital accumulation are institutional investors, they achieve this by increasing their investment holdings and maximising greater profits.