Capital Intensive

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DEFINITION

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.

INVESTOPEDIA EXPLAINS

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.


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