What is 'Capital Accumulation'

Capital accumulation typically refers to an increase in assets from investment or profits. Individuals and companies can accumulate capital through investment. Investment assets usually earn profit that contributes to a capital base. Saving and automated investing can be important in helping individual investors with capital accumulation.

BREAKING DOWN 'Capital Accumulation'

Capital accumulation is a product of capital investment. Capital accumulation also increases with return from an investment. An individual or company can accumulate capital in various ways some of which include investment purchases and investment savings. Return from an investment can also lead to capital accumulation, specifically from occurrences such as investment profits, rent, interest, royalties or capital gains. Entities often increase their holdings in profitable assets to provide for greater capital accumulation. Investors can also regularly contribute to a capital base to accumulate capital and generate capital gains.

Corporate Capital Accumulation

Companies seek to accumulate capital primarily through profits from products and services they produce. A company’s capital structure and capital health can be identified from their financial statements. Generally, the balance sheet provides a snapshot of a company’s capital expressed as equity which represents a company’s assets minus its liabilities. The cash flow statement also shows components of capital accumulation. The cash flow statement is usually broken down into three parts: cash flows from operating activities, investing activities and from financing activities. All three aspects of the cash flow statement can show capital accumulation from positive cash flows. The income statement also provides a comprehensive report on profits which can contribute to capital accumulation.

Investment Capital Accumulation

Investment capital accumulation occurs from regular savings, capital gains, interest or other positive capital flows that result from an investment. Investment capital accumulation can be achieved through various types of investments. Some common investments that offer potential for capital gains and capital accumulation include publicly traded stocks, bonds, exchange-traded funds and mutual funds. Regular contributions to these investments can help to provide for greater capital accumulation.

Various types of investors seek capital gains and greater capital accumulation. To generate greater capital accumulation an individual investor can acquire more shares of a particular stock or mutual fund over an extended period of time. Investors can manage capital in various types of accounts for comprehensive capital accumulation. 401k plans, brokerage accounts, money market accounts, savings accounts and checking accounts can all be used for capital accumulation.

Institutional investors manage portfolios with the goal of capital accumulation. They deploy an investment strategy or manage an investment program to accumulate capital for investors. They may choose to increase their holdings in a targeted position to accumulate greater capital. Retirement funds and pension funds rely on capital accumulation over a period of time to provide for income in retirement.

 

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