Capital Commitment

AAA

DEFINITION of 'Capital Commitment'

Future capital expenditures that a company has committed to spend on long-term assets over a period of time. Capital commitment also refers to securities inventory carried by a market maker. The term may also refer to investments in blind pool funds by venture capital investors, which they contribute over time when requested to do so by the fund manager.

INVESTOPEDIA EXPLAINS 'Capital Commitment'

A company has to exercise the utmost care in structuring its capital commitments, since an inordinately high amount will put undue strain on its finances. It would need to ensure that operating cash flow is sufficient to meet capital expenditures, and if it is not, make arrangements to ensure that it can raise the additional funds on the capital markets. Capital commitments are generally the highest for companies in capital-intensive industries such as power generation.




RELATED TERMS
  1. Capital Budgeting

    The process in which a business determines whether projects such ...
  2. Capital Expenditure - CAPEX

    Funds used by a company to acquire or upgrade physical assets ...
  3. Capital Intensive

    A business process or an industry that requires large amounts ...
  4. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
  5. Heavy Industry

    Relates to a type of business that typically carries a high capital ...
  6. Advance Commitment

    A promise or agreement to take some future action. For example, ...
Related Articles
  1. Working Capital Works
    Insurance

    Working Capital Works

  2. Find Quality Investments With ROIC
    Options & Futures

    Find Quality Investments With ROIC

  3. Operating Cash Flow: Better Than Net ...
    Markets

    Operating Cash Flow: Better Than Net ...

  4. Free Cash Flow: Free, But Not Always ...
    Markets

    Free Cash Flow: Free, But Not Always ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center