Capital Purchases
A capital purchase is an acquisition of an asset that a company intends to keep for several years. The purchase is made using funds from the company’s long-term capital, such as equity or debt. Capital purchases are also known as fixed assets or property, plant, and equipment (PP&E).
Capital purchases can include buildings, machinery, vehicles, land, and software. Companies make capital purchases to maintain or increase their level of production or to expand their operations into new markets.
The decision to make a capital purchase should not be taken lightly since it represents a significant commitment of the company’s resources. The expected return on investment (ROI) from the purchase must be carefully considered before moving forward.
Once a company decides to make a capital purchase, it must identify the supplier that can provide the desired asset at the best price. The negotiation of terms and conditions is another important aspect of the process. Financing options must also be explored in order to determine the most efficient way to fund the acquisition.
