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. Advance Commitment

    A promise or agreement to take some future action. For example, ...
  2. Capital Budgeting

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

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

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

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

    Relates to a type of business that typically carries a high capital ...
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. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center