What Companies Are In The Capital Goods Field?

What Companies Are In The Capital Goods Field?

• General Electric. General Electric Company offers infrastructure and financial services worldwide.
• Union Pacific.
• Caterpillar.
• Ford Motor.
• Northrop Grumman.
• Honeywell International.
• Lockheed Martin.
• 3M.

More items

What are capital goods companies?

Key Takeaways –

The capital goods, or industrials sector, is a collection of companies that manufacture or distribute goods.The group of companies includes firms in the aerospace and defense, construction, and engineering sectors.The strength of the sector is tied to the economy, with manufacturers thriving when the economy is good and struggling when it is fairing poorly.

What are the examples of capital good industries?

Building India, for tomorrow – India’s Capital Goods manufacturing industry serves as a strong base for its engagement across sectors such as Engineering, Construction, Infrastructure and Consumer goods, amongst others. The leading export subsectors of the capital goods sector are heavy electrical and power equipment, earthmoving and mining machinery, and process plant equipment – together accounting for 85% of India’s total capital goods exports.

Target Production size of capital goods will be $ 112 Bn by 2025. By 2025, the Electrical equipment industry, comprising generation and T&D equipment, is targeted to reach a size of $100 Bn. By 2025, the T&D equipment segment is targeted to reach a size of $75 Bn.

100% FDI is allowed under the automatic route. For further details, please refer FDI Policy

% Share in manufacturing Mn Direct employment % T&D equipment demand

Direct and indirect employment expected to reach 5 Mn and 25 Mn, respectively by 2025. India was the world’s 8th largest consumer of machine tools globally, as of 2021 Indian Electrical equipment is the largest sub-sector followed by Plant equipment & Earth moving/ mining machinery.

What falls under capital goods?

Capital goods are the assets used by businesses in the course of producing their products and services, and can include buildings, machinery, tools and equipment. Capital resources is a higher-level concept, defined slightly differently by different scholars.

Who invests in capital goods?

Key Differences –

The purpose of capital goods is to help produce other products. They are meant to be used for production, while consumer goods are bought for personal and final consumption.Businesses, companies, and manufacturers buy capital goods. Consumer goods are bought by consumers.Consumer goods are characterized by having a direct demand, as they directly satisfy the needs of consumers. On the other hand, capital goods have a derived demand since they indirectly satisfy consumer needs.

Consumer Goods vs. Capital Goods
	Consumer Goods	Capital Goods
Intended For	personal consumption	inputs for production
End User	consumers	businesses
Marketing	B2C	B2B
Examples	clothing, food, milk, furniture, cars, gasoline	raw textiles, unrefined wheat, milking machinery, tractors, crude oil

What are the 5 types of capital in company?

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The concept of capital has a number of different meanings. It is useful to differentiate between five kinds of capital: financial, natural, produced, human, and social. All are stocks that have the capacity to produce flows of economically desirable outputs.

• The maintenance of all five kinds of capital is essential for the sustainability of economic development.
• Financial capital facilitates economic production, though it is not itself productive, referring rather to a system of ownership or control of physical capital.
• Natural capital is made up of the resources and ecosystem services of the natural world.

Produced capital consists of physical assets generated by applying human productive activities to natural capital and capable of providing a flow of goods or services. Human capital refers to the productive capacities of an individual, both inherited and acquired through education and training.

Social capital, the most controversial and the hardest to measure, consists of a stock of trust, mutual understanding, shared values and socially held knowledge. In the course of economic history, the focus has shifted from material-intensive to information-intensive technologies. These technologies make it possible to economize simultaneously on the three classical factors of production: land, labor, and produced capital.

Information technologies can be embodied (in physical capital) or disembodied, consisting of shared understandings and procedures (human and social capital). Sustainable development must maintain or increase all productive capital stocks, including natural capital, which is currently often depleted through economic production.

What are the two types of capital goods?

Types of Capital Goods – When we discuss capital goods, we don’t necessarily mean fixed assets that include manufacturing equipment. All goods that help produce a product or service are capital goods. You can even find them in the service sector, for example, the equipment hairstylists use, paints for painters, or musical instruments for musicians.

What are the top capital intensive industries?

What Is an Example of a Capital Intensive Industry? – Capital-intensive industries include automotive, airline, oil and gas, mining, manufacturing, and real estate. These companies all have to spend money on assets that are expensive, such as a factory or an airplane.

What industries need working capital the most?

When discussing corporate cash flow, the tech and retail industries are often used as opposing examples of how different business types use working capital, In general, retail businesses require much more working capital than tech companies, largely because of their inventory needs.

What would be an example of a capital good as a factor of production?

What are the Factors of Production The four factors of production are land, labor, capital and entrepreneurship In economics, factors of production are the resources people use to produce goods and services; they are the building blocks of the economy.

Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship, This episode of our explains the four factors of production with examples. Listen to the audio or read more in the transcript below. To provide students with online questions following the episode, register your class through the,

Factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. Land includes any natural resource used to produce goods and services; anything that comes from the land.

Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas. Labor is the effort that people contribute to the production of goods and services.

Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school. It includes an artist’s creation of a painting as well as the work of the pilot flying the airplane overhead.

If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. Think of capital as the machinery, tools and buildings humans use to produce goods and services. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans.

Capital differs based on the worker and the type of work being done. For example, a doctor may use a stethoscope and an examination room to provide medical services. Your teacher may use textbooks, desks, and a whiteboard to produce education services.

An entrepreneur is a person who combines the other factors of production – land, labor, and capital – to earn a profit. The most successful entrepreneurs are innovators who find new ways to produce goods and services or who develop new goods and services to bring to market. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist.

Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely.

1. The factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services.
2. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.
3. The first factor of production is land, but this includes any natural resource used to produce goods and services.

This includes not just land, but anything that comes from the land. Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas.

The income that resource owners earn in return for land resources is called rent. The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services. Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school.

It includes an artist’s creation of a painting as well as the work of the pilot flying the airplane overhead. If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. The income earned by labor resources is called wages and is the largest source of income for most people.

The third factor of production is capital. Think of capital as the machinery, tools and buildings humans use to produce goods and services. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans. Capital differs based on the worker and the type of work being done.

For example, a doctor may use a stethoscope and an examination room to provide medical services. Your teacher may use textbooks, desks, and a whiteboard to produce education services. The income earned by owners of capital resources is interest. The fourth factor of production is entrepreneurship.

An entrepreneur is a person who combines the other factors of production – land, labor, and capital – to earn a profit. The most successful entrepreneurs are innovators who find new ways to produce goods and services or who develop new goods and services to bring to market. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist.

Think of the entrepreneurship of Henry Ford or Bill Gates. Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely.

1. The payment to entrepreneurship is profit.
2. You will notice that I did not include money as a factor of production.
3. You might ask, isn’t money a type of capital? Money is not capital as economists define capital because it is not a productive resource.
4. While money can be used to buy capital, it is the capital good (things such as machinery and tools) that is used to produce goods and services.

When was the last time you saw a carpenter pounding a nail with a five dollar bill or a warehouse foreman lifting a pallet with a 20 dollar bill? Money merely facilitates trade, but it is not in itself a productive resource. Remember, goods and services are scarce because the factors of production used to produce them are scarce.

In case you have forgotten, scarcity is described as limited quantities of resources to meet unlimited wants. Consider a pair of denim blue jeans. The denim is made of cotton, grown on the land. The land and water used to grow the cotton is limited and could have been used to grow a variety of different crops.

The workers who cut and sewed the denim in the factory are limited labor resources who could have been producing other goods or services in the economy. The machines and the factory used to produce the jeans are limited capital resources that could have been used to produce other goods.

Coal. land Forklift. capital Factory. capital Oil. land Michael Dell. entrepreneur

It’s time to wrap things up, but before we go, always remember that the four factors of production – land, labor, capital, and entrepreneurship – are scarce resources that form the building blocks of the economy.

Are stocks considered capital goods?

What are the different types of capital goods? – Many different items fall under the umbrella of capital goods. First, capital goods can be fixed assets that a company owns. These items, often known as property, plant, and equipment (PP&E) for accounting purposes, are significant investments for companies and usually appear as assets on their balance sheets,

• Examples include plants, office buildings, manufacturing machinery, and vehicles.
• Spending to purchase these assets is known as capital expenditures (CapEx),
• Capital goods also consist of smaller tools and supplies that companies use.
• These items aren’t usually valuable or expensive enough to appear as assets on a balance sheet, but they certainly provide value to the company.

These may include hammers, drills, and other tools for a construction company, or medical instruments for a doctor. Capital goods can also include infrastructure, as long as it is used in the production of a good or service. For example, air traffic control equipment is an example of a capital good that aviation companies use.

Finally, core capital goods, according to the US Census Bureau, are all capital goods with the exception of defense equipment and aircraft. The sale of these goods is one of the primary indicators that economists look to when measuring future economic growth. A share of stock is not a capital good. For something to be a capital good, it must be a tangible, man-made item used in the production of another good or service.

Stock shares aren’t tangible items. When you purchase a stock, you’re buying a chunk of ownership in a company, not a physical item used to produce something consumers buy.

Do capital goods include factories?

Capital goods are goods other than material inputs and fuel, used for the production of other goods and/or services. They include factory buildings, machinery, locomotives, lorries and tractors. Land is not usually regarded as capital goods (NACE Rev.2).

What are 4 examples of capital in economics?

Key Takeaways –

The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth.The four major types of capital include working capital, debt, equity, and trading capital. Trading capital is used by brokerages and other financial institutions.Any debt capital is offset by a debt liability on the balance sheet.The capital structure of a company determines what mix of these types of capital it uses to fund its business.Economists look at the capital of a family, a business, or an entire economy to evaluate how efficiently it is using its resources.

Why do people invest in capital goods?

Capital Investment’s Relationship to Gross Domestic Product (GDP) – In order for it to be economically viable for a business to increase or improve its capital structure, a company must have adequate cash or funding. Typically, a business would seek this funding through issuing debt–or bonds–or equity–by issuing stocks.

Capital investments are long-term investments; they allow companies to generate revenue for many years by adding or improving production facilities and boosting operational efficiency. A business does not see an immediate increase in revenue when it makes investments in capital goods. An increase in capital investment allows for more research and development in the capital structure.

If a company wants to take new products and services to the market, they will typically engage in research and development activities as their first step towards innovating and introducing new products and services or improving their existing offerings.

1. Additional or improved capital goods is intended to increase labor productivity by making companies more productive and efficient.
2. Newer equipment or factories leads to more products being produced, and at a faster rate.
3. For example, a new production facility might use less electricity because it uses newer equipment and is housed in a more energy-efficient building.

As a result, more products can be produced at a lower cost, and with faster turnaround times; this can increase the company’s profits. As labor becomes more efficient, this increased efficiency nationwide leads to economic growth for the entire country and a higher nationwide GDP.

1. Capital goods are not the same as financial capital or human capital.
2. Financial capital includes the funds necessary to sustain and grow a business, which a company secures by issuing either debt–in the form of bonds–or equity–in the form of shares.
3. Human capital refers to human labor or workers.
4. Before a company can invest in capital goods, it must first have the resources and infrastructure set up to secure financial capital.

Human capital is then used to design, build, and operate capital goods.

Is oil a capital good?

They are man-made. – Keep in mind that goods, including capital ones, are man-made. Your business may also need raw materials or other natural resources like oil as part of the production process, but oil is not a capital good because it’s not man-made.

Is sugar a capital good?

CAPITAL GOODS VS. CONSUMER GOODS – Consumer goods are the final items purchased by a consumer or business for their direct use, or consumption. Capital goods are items used to manufacture another product. For example, an item of clothing is a consumer good, while the machinery used to produce that piece of clothing is a capital good.

What are the 7 types of capital?

The seven community capitals are natural, cultural, human, social, political, financial, and built.

What are the six business capitals?

Get to grips with the six capitals The primary purpose of an integrated report is to explain to financial capital providers how an organization creates value over time. The best way to do so is through a combination of quantitative and qualitative information, which is where the six capitals come in.

The capitals are stocks of value that are affected or transformed by the activities and outputs of an organization. The Framework categorizes them as financial, manufactured, intellectual, human, social and relationship, and natural. Across these six categories, all the forms of capital an organization uses or affects should be considered.

An organization’s business model draws on various capital inputs and shows how its activities transform them into outputs. : Get to grips with the six capitals

What are the 8 forms of capital?

To build a region’s wealth, WealthWorks considers not just financial assets, but includes the stock of all capitals in a region. This approach takes into account all the features of a city, town, countryside or region that make it a good place to live, work and visit. These might include:

Strong sense of community Good infrastructure (e.g., affordable broadband, good roads, health care) Well-trained workers with the right skills to be productive in local businesses Unspoiled natural beauty (e.g., lakes, streams, hiking trails, parks) or natural assets like wetlands that control flood waters Inclusive, open government A few strong sectors with well-paying jobs and career possibilities

Each of these represents a component of a type of capital. Some components of capital—like the ones listed above—are more immediately recognizable than others. Some are less visible because they are in disrepair, not used, or taken for granted. Such “underutilized resources,” if identified and invested in, could contribute more to the region’s wealth.

• For example, a vacant lot considered an eyesore today could, with imagination and investment, become a productive community garden or recreational space tomorrow.
• Underskilled but willing workers could, with investment in training programs for skills that local firms need, become the region’s strongest asset.

WealthWorks simplifies things by organizing these local features into eight discrete capitals, which are defined in the table below and share the following characteristics:

Each capital is a collection of one category of related resources. Every region has a stock of each type of capital—meaning the combined quantity and quality of the many components of that capital in the region. Taken together, the existing stocks of these eight capitals constitute a region’s current wealth.

The eight capitals

The capital	The definition
Individual	The existing stock of skills, understanding, physical health and mental wellness in a region’s people.
Intellectual	The existing stock of knowledge, resourcefulness, creativity and innovation in a region’s people, institutions, organizations and sectors.
Social	The existing stock of trust, relationships and networks in a region’s population.
Cultural	The existing stock of traditions, customs, ways of doing, and world views in a region’s population.
Natural	The existing stock of natural resources—for example, water, land, air, plants and animals—in a region’s places.
Built	The existing stock of constructed infrastructure—for example, buildings, sewer systems, broadband, roads—in a region’s places.
Political	The existing stock of goodwill, influence and power that people, organizations and institutions in the region can exercise in decision-making.
Financial	The existing stock of monetary resources available in the region for investment in the region.

Download this table as a PDF. In WealthWorks, to get started, you must first get a handle on the eight capitals. As the concept of wealth-building becomes more familiar, you will see how qualities of a community or region can be captured within the eight capitals.

For example, having a college or university with a specialized technology center that relates to an important local industry ramps up your region’s intellectual capital. Well-publicized and understood government processes that invite resident participation contribute to a region’s political capital. High levels of volunteerism can be counted as part of your region’s social capital.

Readily accessible and affordable excellent early childhood programs for low-income residents can build individual capital in your region’s future workers and entrepreneurs.

What is the difference between capital stock and capital goods?

Explain the difference between capital goods and capital stock ?

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Posted by Ishu Sahu 3 years, 6 months ago CBSE > Class 12 > Economics

1 answers

Yogita Ingle 3 years, 5 months ago Capital goods refer to those final goods that are purchased by the producers (firms) for using them in the process of production. They do not require further processing. On the other hand, capital stock refers to the total physical capital available with an enterprise. For example: plant, machinery etc.0 Thank You ANSWER

Which of the following is not a capital good?

Option 1 is correct, Food and Clothing. Food and Clothing is part of Non-durables consumer goods. Capital goods are tangible assets that one business produces which in turn gets used by the second business to produce consumer goods.

What is the difference between fixed assets and capital goods?

Capital Goods & Fixed Assets – Accounts (CA_Final Student) (882 Points) Replied 04 March 2016

Fixed assets are Assets held with the intention of being used for producing goods or providing services.The Term Capital Goods in generally used for goods that fall under VAT or Excise, these are those goods which are used in producing other goods and are not comsumer goods.In Short all Capital Goods are Fixed Asset but all Fixed Assets are not Capital Goods.

: Capital Goods & Fixed Assets – Accounts

What are capital goods vs producer goods?

Capital goods include only fixed assets of the producers. These are durable producer goods. On the other hand, goods used as raw material are single-use producer goods. These are not repeatedly used in the process of production.

What is the difference between fixed assets and capital goods?

Capital Goods & Fixed Assets – Accounts (CA_Final Student) (882 Points) Replied 04 March 2016

Fixed assets are Assets held with the intention of being used for producing goods or providing services.The Term Capital Goods in generally used for goods that fall under VAT or Excise, these are those goods which are used in producing other goods and are not comsumer goods.In Short all Capital Goods are Fixed Asset but all Fixed Assets are not Capital Goods.

: Capital Goods & Fixed Assets – Accounts

What is an example of a capital equipment?

TABLE OF CONTENT 1. Introduction – Capital Equipment (SK) (09/12/2000) 2. Types of CE (SK) (09/09/2000) 2.1 FCE 2.2 MCE 2.2.1 Stationary CE 2.2.2 Portable CE 3. Forecasting, Assessment and Replacement (SK) (09/30/2000) 4. Overview of CE purchasing 4.1 CE: When to buy? (NG) (09/12/2000) 4.2 CE: What to buy? (NG) (09/09/2000) 4.3 CE: How to buy? (MR) (09/09/2000) 5.

• Financing options (MR) (09/15/2000) 5.1 Loan 5.2 Lease 6.
• Metrics (SK,NG,MR) (09/16/2000) 7.
• Conclusion (SK,NG,MR) (09/30/2000) 1.Introduction The principal challenge facing business is to make possible to achieve the rising standards of living, which the people have a right to expect.
• Mass production will continue to be the basic tool in achieving this objective, but we must accelerate our capital investment to obtain greater productivity at lower unit cost.

Research, on which large sum is been spend, acts as a stimulant to capital investment and will result in the replacement of much existing machinery. Through technological progress, improved as well as new products will compel change. There has been a decided shift away from the theory that a capital investment program consists only of replacing worn-out machinery.

No longer are we preoccupied primarily with the physical life span of equipment in considering capital investment. Today the basic consideration must be the optimum economic life span of plant and machine. ” We opt for modern machinery and equipment capable of producing a higher-quality product at lower cost with less waste “,

To reach intelligent decisions on capital investments, it is necessary to consider long-range objectives, future technology changes, the need for additional products and other factors individual to each company. These considerations must indicate the effect on dilution of equity, reduced earning from heavy amortization in the early years, and the length of time it will take for earnings to justify the new facilities.

Capital Equipment (CE) : ” Capital Equipment is what financial people call a noncurrent asset, meaning it is capitalized and depreciated over the length of its productive life “, Capital Equipment is also considered as an investment that is directly related to the generation of profit. There is a direct correlation between Capital Equipment and the cost of production.

This is a sample how “Capital Equipment” is defined in a project :

A. Any individual piece of equipment with a useful life of more than two years and an acquisition cost of $5,000 or more for state funded or $5,000 or more for federally funded.

Equipment costing less than $5,000 for state funded or $5,000 for federally funded is considered a supply item

b. Supply items are neither assigned UWM property numbers nor inventoried by Purchasing.B. The acquisition cost of capital equipment includes the cost of transportation, installation, modification and attachments.2. Capital Equipment is equipment, having a useful life of more than two years and an acquisition cost of $500 or more per unit.3. Capital Equipment- Any movable asset (each item)

• valued at $500 or more
• with a useful life of 1 year or more
• not permanently affixed to a building.

TOP 2, Types of Capital Equipment Fixed Capital Equipment (FCE)

1. Capital equipment is permanently attached to a building.
2. FCE has a useful life of more than two years and an acquisition cost of $5,000 or more.
3. The removal of the FCE would substantially alter the building’s value.
4. Fixed capital equipment items are considered an improvement to the building, and a part of the building.
5. Fixed capital equipment items are not issued inventory numbers and therefore are not carried on inventory records.

Examples of fixed capital equipment items are: plumbing fixtures, heating and electrical equipment, built-in shelves and cabinets, and inlaid carpeting. Movable Capital Equipment (MCE) 1. Movable capital equipment is defined as capital equipment, which is not permanently attached to a building or a structure.2.

Movable capital equipment is not an integral part of its surroundings. Its removal does not affect the value of the item or the value of the real property.3. MCE items are issued inventory numbers and are carried in the Generalized Inventory file. change in status, i.e., moved, sold, surplusage, stolen, traded-in, etc., must be reported to Purchasing.4.

Movable capital equipment is further defined as stationary or portable,A. Stationary Capital Equipment (SCE) 1. Many items of movable capital equipment are generally housed in the same location because of size and/or application.2. Such items are classified as stationary and their locations are a permanent part of the inventory record.B.

Portable Capital Equipment (PCE) 1. Many items of movable capital equipment because of size, use, or application may constantly be moved from place to place,2. Examples include audio-visual equipment, dictating machines, test meters, etc.3. Items in this category are designated portable capital equipment.4.PCE must be assigned a “home” location.

At the “home” location, a record should be kept of the PCE’s current location including the name of the person to whom it is issued. Also, Home locations must be reported to Purchasing so that they can be recorded on inventory records. TOP 3.Forecasting, Assessment and Replacement Forecasting Returns from Investments in Capital Equipment: How should a capital budget analyst go about forecasting the future cash returns from a prospective investment in Capital Equipment? From the standpoint of practicing Capital Budget Analysis, the preparation of accurate forecasts of future returns from investment in Capital Equipment represents a key element in any successful capital investment program.

In other words, the forecast of the future returns from a capital Equipment must start with a forecast of the future rate of return, which the firm will realize on the cash, receivables, inventories and fixed assets in the line of activity to which the Capital Equipment relates. This will be true regardless of how the CE will be classified by the firm In the case of proposed expenditures for cost reduction equipment, the future rate of return, which the firm will realize on the entire asset investment in the product line, needs to be forecast.

Lets consider the case of cost-reduction equipment as an illustration. Here the forecasting appears simple and clear cut. Here the forecast of future investment returns involves estimating the future savings that will be realized in labor, material and other costs for some forecasted level of future output.

• If a firm is to avoid pouring money down the drain on cost reduction equipment, the present and future decisions to continue the activity must be explicitly considered first.
• In cases where the decision to continue the use of the Capital Equipment goes without saying the cost savings will suffice to reach an intelligent decision on the equipment.

Assessment and Replacement of Existing Capital Equipment: The great strides made in increased output per man-hour and output per dollar of investment have come to a significant extent through the installation of better tools and machines. If we are to continue to improve productivity it is necessary to replace obsolete plant and equipment.

• Payback
• Uniform Annual Cost
• Compromise
• Comparative Annual Cost
• MAPI (Machinery and Allied Products Institute)
• Incremental Cost
• Cost Flow
• Dynamic Programming

The Incremental cost, Cost-Flow and Dynamic Programming method are different from the other methods mentioned in that they compute the optimal year of replacement of the existing equipment rather than comparing costs of the existing and the new equipment to determine whether replacement is needed or premature.

In terms of reliability and simplicity the Comparative Annual Cost Method is preferred to Uniform Annual Cost method and MAPI method. Comparative Annual Cost Method (CAC): Present equipment or the old asset is denoted as defender and the equipment proposed for replacing the defender is called the challenger.

The CAC method has been suggested by Foster and Norton. It recognizes three major components of replacement cost: capital, operating, and deterioration and obsolescence (D&O) costs. Capital cost refers to cost associated with the use of money, which is fundamental to the time value of money concept.

D&O cost reflects the annual machine depreciation and increased operating costs due to obsolescence. CAC = (P-S)(ACPG r%, n) + Si + D Where CAC = comparative annual cost P = Purchasing price of challenger or current market value of defender depending on whether this equation relates to challenger or defender.

S = Salvage value ACPG = Annual Cost Plus Gradient r = annual rate of interest n = expected life service in years (for challenger) or remaining expected life service in years (for defender) i = interest rate per year D = net annual operating costs TOP 4.Overview of Capital Equipment Purchasing CE: When to Buy? Most business owners will tell you the most complex, excruciating decisions that they must ponder are those involved with the purchasing of new capital equipment.

Will the market support it? “, ” Will the economy stay good? “, “Can I afford to add more debt? ” ” Should I sell existing equipment? ” These questions, and many more, go through the minds of trade finishing operations on a daily basis. Next section will explore the ins and outs of adding that new piece of equipment, and the type of questions you should ask before making a purchasing decision.

” Analyze the Need Carefully ” Before time is wasted in researching the specific model or manufacturer of the type of equipment they think they need, he or she should first do a ” careful analysis ” on the feasibility of adding new equipment. As many know, you can end up spending a great deal of time attending trade shows or talking with salespeople when you might think you are in the market for a new machine.

1. This can be wasted time if you later find out you cannot afford the equipment or your particular market won’t support it.
2. The bottom line is that you must analyze the market and make sure you can get a return on investment,”,
3. How do you do this? Asking yourself if your current customer base will support the additional capacity.

If not, you must decide if you will have the capability to expand your market either locally or farther out geographically. Find out if your competition offers this service already. If so, you must decide if the machine you purchase will produce better product or run at faster speeds.

If they do not offer the service, it may make your decision easy, based on a belief that there is a market for the additional equipment. Some companies analyze customer base by looking at the growth of various revenue channels and determine how much potential growth can achieve from them and then how much growth can be achieved from any new customers at a target during the next year.” Companies also looks at the overall economy when considering new equipment as well, and looks even more specifically at the economic projections for the related industry both regionally and nationally.

Many times companies look at purchasing new equipment when they receive a specific contract for a specified amount of time. Contract work can justify new equipment, but there are many factors to consider. First and foremost is the duration of the contract.

It is extremely difficult to justify new capital equipment if the contract work does not cross over into your main business focus, especially if the contract is for only one to two years. If the contract is set up for multiple years with options to extend it even further, then it becomes easier to justify the capital expenditure.

The marketability of the equipment is another important factor when considering a new machine. This can be especially true if you are looking at new equipment for a specific contract or if you are looking at entering a new market altogether. ” It is always worthwhile to check the resale value of the machines you are considering, Some equipment will historically depreciate rapidly while other machines can hold their value quite nicely.” Checking with some of the used equipment dealers on their thoughts of the resale value is a good idea as well.

If the new equipment that you are considering fits well with the current services you offer, and you do not predict a need to resell it at all, then the long-term marketability of the machine may not be as strong a factor. Following are some more considerations 1) Of first importance are replacements, which give continuity of operation.

Mobile mining and quarry machinery, for example, has an average life of five years. In cases of excessive use, it is frequently found that it is more economical to replace pieces of equipment after shorter periods, particularly when the cost of repair becomes high.

• In this type of equipment, there is little obsolescence.
• Extremely close watch is kept over the repair costs and when point is reached where uneconomical operation occurs, machine is ready to go off and to be replaced.
• Equally important is the plants where raw materials are processed.
• Here the depreciation period is about 20 years, but again, repair costs are the major factor in replacement.

To prevent a complete breakdown, the maintenance staff watches each machine and as it approaches the end of its economically useful life, replacement is ordered.2) A second category of appropriation requests is the replacement of existing machines to improve quality,

• Continuous research directed towards the improvement of both product and process repeatedly shows that changes in equipment are needed and that obsolescence in this area may become important.3) Another category is the acquisition of new machinery designed to reduce costs,
• TOP CE: What to Buy? Once you have determined that you are definitely in the market for a new press, folder/gluer, coater, etc., you now must take the second step and decide which particular machine to buy.

Researching the potential equipment vendors for the type of machine you are considering and then identify what you need-fast make ready times, running speeds, registration accuracy, etc is recommended, “Create a list of what you are looking for and specific questions to ask your sales representative,”,

1. Once you have narrowed your choices to machines that look to be the best on the surface, the next step is to get a list of installations and references.
2. Always check as many references as possible, ask questions on equipment reliability, service, parts availability, warranty issues, etc.” It is also recommended to visit the handful of manufacturing facilities that you have narrowed your choice to.

“This is a step that a lot of people don’t pursue, trade shows can disguise how professional a company really is, and parts inventory is the one area that can be easily misrepresented,” An on-site visit can clear up any gray areas or last questions you might have.

1. If the equipment manufacturer hesitates, then this might be a red flag before going any further.
2. Lastly, a pre-delivery inspection of the equipment you are purchasing is always wise.
3. Before the machine leaves the factory, an actual production test of the type of product(s) should be done.
4. It is recommended to use the actual stock, dies, glues, coatings, etc., that you know will be used in your plant to verify that the machine functions to your satisfaction.

“This will allow you and the manufacturer to have peace of mind that the guarantees that are being made are realistic and can be met long term,”. TOP How to Buy? Purchasing capital equipment is different from other types of purchasing, which occur in an organization.

1. There is a direct correlation between capital equipment and the costs of production “.
2. It must be remembered, as well, that the total cost of a piece of capital equipment includes the costs of operating and maintaining the machine during its productive life.
3. This cost may be much greater than the initial cost.

That is why the purchasing of capital equipment requires the skillful estimation of future operation and maintenance costs unlike items which are used much more quickly. Companies buy capital equipment much less frequently than most items needed to run a business.

Sometimes, the frequency can be in terms of five to twenty years between the purchase of large items like chemical fertilizer plants, printing presses, welding machines or specialized materials-handling equipment. The reason being, that most of these items have long lead times and are expensive to design and build,

Thus, they often take a long time to produce as well. This is of particular importance to the purchasing and engineering departments since lead times are most often quite long, sometimes months or even years. While there are some off-the-shelf capital equipment items, these are the exception.

1. A long lead-time puts a premium on the ability of a purchasing department to select suppliers and negotiate mutually advantageous partnerships with them.
2. Another issue is capital spare parts, their cost and lead times.
3. Process: For the most part, the process of procuring capital equipment begins with a capital requisition form and approval process,

A department in the company, usually Engineering or Maintenance, identifies a need for new equipment. Most often, this is not an immediate need but one that can be fulfilled in the near, or even long-term, future. Perhaps the company records indicate that a current machine is approaching the end of its life cycle and needs replacement.

In many cases, the manufacturing manager has budgeted, as part of the company’s strategic goals, the need for a new machine to replace an old one in order to make products of higher quality, lower total cost and higher profitability. Whatever the case, it is often true that this initial request for proposal is made to gather information about possible suppliers, prices and delivery schedules.1) The requestor studies the proposals, to determine whether or not it is feasible to procure this piece of capital equipment.

Perhaps information about alternative solutions needs to be gathered to explore more effective solutions.2) If the decision has been made to continue forward with the original request, the requesting department works with a team consisting of people from Purchasing, Finance, Engineering and Maintenance to write up a capital appropriation request and detailed specifications.

These specifications must cover performance, design and operating characteristics and features. It is often advisable to include a sales engineer (or engineers) from one or more of the suppliers during various stages in this step. They can supply alternatives (based on their expertise) which will lower costs or improve efficiency and quality.3) When your company has drawn up these specifications, you then request proposals from suppliers.

These suppliers should be certified.4) Concurrent to the request for proposals, the company must prepare a financial analysis of all the alternatives.5) Armed with the financial analysis and suppliers’ responses to the request for proposals, the company evaluates the information, and makes a recommendation.

This recommendation includes a description of the capital equipment, how it is used and why it is needed. All the metrics are carefully considered while making the decision. It also includes financial information such as estimated operating and maintenance costs for the equipment’s life as well as the expected rate of return on the investment.6) Since many purchases of capital equipment are expensive, top management’s final approval is required.

The written recommendation prepared in the previous step is submitted to management for review and sign off. TOP Financing Options The last step is to finance it. There are several options involved with financing new equipment. Are you going to borrow money from your bank? Will you use a financial company familiar with the industry? Are you going to buy or lease the equipment? These are some of the basic questions you must consider.

Loan If you have decided to borrow the money with a standard loan, you are most likely going to finance the equipment with your local banker or a finance company, This is certainly a personal choice. However, in many situations, a bank is not familiar with the graphics arts industry and will expect you to secure the loan with other assets within the company.

A finance company within the industry will usually use the machine itself as collateral. This is possible because of their knowledge of the industry and the network available to them to help them sell used equipment. Another advantage of working with a separate finance company is the flexibility of looking at other financing options that may not be available with a bank.

These include a loan that has step up payments over the first few months as the business increases on the new equipment. This is especially helpful if you are expanding your business with services you never have offered in the past, like the addition of a new UV coating machine. It will take a while to educate your customers that you now have this service available if you have never offered it in the past.

You can also negotiate a balloon payment at the end of the loan that, again, can help keep the payments down as you increase the work on the new equipment. Leasing The other option available to you is the possibility of leasing the machine. Leasing provides an enormous amount of flexibility,

You can look at options as we discussed above that include low payments at the beginning which increase throughout the term of the lease, balloon payments, and even seasonal payments where you pay more during the time period when the equipment is being used the most. This may apply with contract work that hits one or two times during the year.

Leasing also allows a very small amount of cash outlay. In most cases, there is no down payment necessary as there is with a loan. In addition, if the lease is structured properly, you may be able to deduct the lease payment as a current operating expense for income tax purposes.

• The major disadvantage of equipment leasing is that in the long run the overall cost of a lease can be more expensive than other types of financing.
• Secondly, because you are basically renting the machine, you do not build equity with the asset as you would with purchasing the machine outright.
• TOP 6.Metrics Metrics What makes a “good” metric? From a psychometric point of view, metrics must be reliable and valid.

Reliability refers to consistency, i.e. if circumstances do not change, the metric should read at a consistent value. Unreliable metrics can be thought of as indicators subject to a large amount of random variation. They may truly assess whatever concept they are supposed to be measuring, but one cannot trust the precision of the assessment.

A valid metric is one that actually measures the concept we think it is measuring. To illustrate, One indicator of the success of an Electronic Commerce trading partner relationship between an “X” and its suppliers may be the number of “expedited purchase orders”. The validity question is whether this metric truly indicates the effectiveness of electronic commerce.

One could argue in various ways. Part of Electronic commerce is a good planning process supported by technology. Because successful EC implementation requires good planning and efficient communication, one would expect EC to decrease the need for expediting.

Or in a contrary manner, Expediting is mostly driven by unexpected changes in the “X”s market, and thus is not an indicator of the effectiveness of “X”/supplier EC. And so on, as many variations, nuances, and partial affects may be considered. The correct answer of course depends on context. If historically, expedited purchase orders in the “X” – supplier relationship came from poor internal planning and data transmission within the “X”, then expedited purchase orders are a valid indicator.

If the source of uncertainty has been the market, then the metric is not valid. Whether valid or not though, the measurement itself may be reliable, as in both cases one may be able to accurately assess the number of expedited purchase orders In addition to the “scientific” concerns of validity and reliability, good metrics must also be practical, in the sense that the data can be obtained at reasonable cost and effort; and salient, in that they must mean something to the people who will use the information.

To build on the previous example, many companies, for reasons of running their own business, keep good records of the number of expedited purchase orders they receive. Further, managers care about this number because the greater the expediting, the greater the trouble and cost to all involved. The challenge is to jointly maximize the four characteristics of a good metric – validity, reliability, practicality, and salience,

As in any design effort, good metric design requires not only a joint optimization of these characteristics, and also a cross functional design team whose members collectively understand, and have a stake in, all of the desired design parameters. Metrics for Purchase of Capital Equipment: 1.

• Analyzing Costs ( What to buy, When to buy and How to Buy)
• Capital Expenditures: Capitalized costs may include, but are not limited to, the cost of an item, freight, sales tax, use tax, installation charges, consultant services related to acquiring an item, the fair market value of assets given in exchange, and the present value of liabilities incurred or assumed.

2. Process technology:

• Efficient utilization of material
• Quality, Precision, Accuracy etc,
• Optimization, Automation.

3. Productivity 4. Economies of Purchase

• Life: The useful life and the resale value of the CE are a major factor.
• Payback time ( to consider depreciation and interest for long term loan )
• Supplier cooperation (Lead time for delivery)

5. Inventory

Critical spare parts.

6. Maintenance and Operational costs

• Cost of spare parts and Maintenance.
• Special licenses

7.Capacity utilization

• Ratio of fixed to variable costs
• Cost of installing and closing capacity

8. Special Costs

• Special housing required.
• Operation cost e.g. Fuel, special material.
• Does it require upgrading the other equipment?
• Specially trained operating and maintenance staff.

TOP 7. Conclusion Capital Equipment is what financial people call a non-current asset, meaning it is capitalized and depreciated over the length of its productive life. Why do we go for CE? Basically we opt for modern machinery and equipment capable of producing a higher-quality product at lower cost with less waste.

To reach intelligent decisions on capital investments, it is necessary to consider long-range objectives, future technology changes, the need for additional products and other factors individual to each company. These considerations must indicate the effect on dilution of equity, reduced earning from heavy amortization in the early years, and the length of time it will take for earnings to justify the new facilities.

Since the investment in CE is an occasional one, it requires careful analysis and research. Another important decision to be made is whether to buy or to lease the equipment. If it is to be bought, the resale value of the equipment is to be calculated.

The equipment should have a minimum payback period. Different Replacement and assessment methods are used to compute the optimal year of replacement of the existing equipment or to compare costs of the existing and the new equipment to determine whether replacement is needed or premature. The Metrics for investing in CE are carefully looked into.

Once the decision regarding the procurement (or replacement) of the CE is taken by the Engineering or Maintenance Dept, the process begins with a capital requisition form and ends with final approval from management. TOP

What is an example of a capital?

What Are Examples of Capital? – Any financial asset that is being used may be capital. The contents of a bank account, the proceeds of a sale of stock shares, or the proceeds of a bond issue all are examples. The proceeds of a business’s current operations go onto its balance sheet as capital.