Capital Decay

DEFINITION of 'Capital Decay'

An economic term denoting the amount of revenue that is lost by a company due to obsolete technology or outdated business practices. Capital decay is a growing problem for firms, as the rate of technological development continues to increase. This financial malady can cause firms without current technology to struggle to keep up with competitors.

BREAKING DOWN 'Capital Decay'

Capital decay was the boon of many firms in the early twentieth century, when modern production methods first came into use. When Henry Ford began to employ the assembly line for car production, firms that used the same employee to build an entire car suffered from capital decay and either went out of business or sold out to Ford or another competitor.

RELATED TERMS
  1. Time Decay

    The ratio of the change in an option's price to the decrease ...
  2. Obsolescence Risk

    The risk that a process, product or technology used or produced ...
  3. Legacy Asset

    An asset that has been on the company's books for a long period ...
  4. Information Management Technology ...

    Information management technology is the distribution, organization ...
  5. Economic Capital

    The amount of capital that a firm, usually in financial services, ...
  6. Technology Sector

    A category of stocks relating to the research, development and/or ...
Related Articles
  1. Options & Futures

    When And How To Take Profits On Options

    Here are the different criteria to ensure maximum profit taking while trading options.
  2. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  3. Options & Futures

    Understanding Theta

    In options trading, theta measures the daily rate of decline in an option’s value as it nears its expiration date.
  4. Options & Futures

    Henry Ford: Industry Mogul And Industrial Innovator

    This man made his dream of bringing the automobile to the masses a reality.
  5. Stock Analysis

    What Drives Ford's Profits? Not Just Cars

    Ford, an experienced legacy car manufacturer, sells a lot of cars around the world and makes a lot of money in the money lending and leasing business.
  6. Economics

    What's Economic Capital?

    While regulatory and economic capital use some of the same measurements of risk to determine how much capital a firm should hold in reserve, economic capital uses more realistic measures.
  7. Technical Indicators

    Key Financial Ratios to Analyze Tech Companies

    Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies.
  8. Professionals

    Achieving Economic & Technological Efficiency

    Achieving Economic & Technological Efficiency. Learn what economic constraints a firm faces, the various types of firms and factors promoting cost efficiency.
  9. Economics

    What is a Firm?

    A firm is a business or organization that sells goods or services on a for-profit basis.
  10. Economics

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
RELATED FAQS
  1. What is the average debt/equity ratio for the Internet sector?

    Learn about how debit option spreads work, including their maximum profit and loss, and understand how time decay impacts ... Read Answer >>
  2. What is the difference between private equity and venture capital?

    Learn the differences between private equity and venture capital, especially in terms of how these types of firms invest ... Read Answer >>
  3. How does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  4. Why would a company want to do an acquisition of another company?

    Review some of the reasons why business acquisitions take place, and how the acquiring company is looking to benefit from ... Read Answer >>
  5. Who are Ford's (F) main suppliers?

    Explore the history and current operations of Ford Motor Co. and discover some of its primary global parts suppliers. Read Answer >>
  6. What is the difference between financial capital and economic capital?

    Read about the differences between types of financial capital, which companies use to raise money, and economic capital models ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center