Capital Intensive

AAA

DEFINITION of 'Capital Intensive'

A business process or an industry that requires large amounts of money and other financial resources to produce a good or service. A business is considered capital intensive based on the ratio of the capital required to the amount of labor that is required.

Some industries commonly thought of as capital intensive include oil production and refining, telecommunications and transports such as railways and airlines.

VIDEO

Loading the player...

BREAKING DOWN 'Capital Intensive'

In all of the above industries, a large financial commitment is required just to get the first unit of good or service produced. Once the upfront investments are made, there may be economies of scale with regards to ongoing expenses and sales growth. But the initial hurdle to get into the business tends to keep the list of competitors small, creating high barriers to entry.

Companies in capital-intensive industries are thus often marked by high levels of depreciation and fixed assets on the balance sheet.

RELATED TERMS
  1. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
  2. Sticky-Down

    A figure that can move higher relatively easily, but only will ...
  3. Capital

    1) Financial assets or the financial value of assets, such as ...
  4. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  5. Trading Dollars

    A slang term describing a company that is spending just as much ...
  6. Labor Intensive

    A process or industry that requires a large amount of labor to ...
Related Articles
  1. Technical Indicators

    Key Financial Ratios to Analyze The Automotive Industry

    Learn about the most critically important financial ratios investors and market analysts utilize to evaluate companies in the automotive industry.
  2. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  3. Investing

    How To Analyze Restaurant Stocks

    Don't put your money on the table before getting a taste for analyzing this sector.
  4. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  5. Markets

    Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.
  6. Fundamental Analysis

    Spotting Profitability With ROCE

    This straightforward ratio measures whether a company is efficient, money-making or neither.
  7. Fundamental Analysis

    The Capital Asset Pricing Model: An Overview

    CAPM helps you determine what return you deserve for putting your money at risk.
  8. Home & Auto

    A Solar-Powered Home: Will It Pay Off?

    Outfitting your home with solar power can be a long-term investment, or just a step toward greener living.
  9. Options & Futures

    All About EVA

    Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added.
  10. Economics

    Understanding Organic Growth

    Organic growth is the increase in a company’s revenue and value due to internal operations.
RELATED FAQS
  1. What is the average profit margin for a company in the telecommunications sector?

    The average net profit margin for companies in the telecommunications sector, as of 2014, is approximately 11%. Net margins ... Read Full Answer >>
  2. Which segments of the chemicals sector have the highest profit margins?

    The two segments of the chemicals sector that have the highest profit margins are agricultural chemicals and pharmaceuticals, ... Read Full Answer >>
  3. Which industries tend to have the greatest EBITDA margins?

    High profit margins can only be attained if cost structure is low relative to revenue. Pricing power is usually the key to ... Read Full Answer >>
  4. What debt/equity ratio is typical for companies in the insurance sector?

    The debt-to-equity ratio is calculated by dividing total liabilities by total equity, and it is used to measure leverage. ... Read Full Answer >>
  5. What are some ways a company can improve on its Return on Capital Employed (ROCE)?

    Options available to a company seeking to improve on its return on capital employed (ROCE) ratio include reducing costs, ... Read Full Answer >>
  6. If a company has a low price to book ratio, does this mean its stock is undervalued?

    A low price-to-book ratio, or P/B ratio, is an indication a stock may be undervalued, but because of all the variables involved, ... Read Full Answer >>
  7. What are some examples of companies that have high capital expenditures (CAPEX)?

    Five companies with high capital expenditures (CAPEX) include Tesla Motors, General Motors, Apple Computer, Nike and Facebook. ... Read Full Answer >>
  8. What do people mean when they say debt is a relatively cheaper form of finance than ...

    In this case, the "cost" being referred to is the measurable cost of obtaining capital. With debt, this is the interest expense ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!