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An economic term denoting the amount of revenue that is lost by a company due to obsolete technology or outdated business practices.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.

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  1. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  6. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>

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