Capital investment-heavy businesses
Although there's been a great deal of emphasis placed on the knowledge economy and service work, many key industries still rely heavily on capital investments to provide vital goods and services. Industries such as agriculture, construction, transportation, and manufacturing are examples of capital-intensive industries that would be either orders of magnitude smaller or not exist at all without capital investment.
The energy industry, which accounts for almost 5% of the U.S. gross domestic product (GDP), is a major part of the economy that relies heavily on capital investment to maintain profitability. Solar panels, wind turbines, power transmission lines, and batteries all rely on capital investments to provide energy to customers.
Few energy industry segments, however, are as reliant on capital investment as the oil and gas industry. To find oil, companies must invest in cutting-edge equipment, such as seismic monitors, to help them understand the potential for oil and gas fields. More capital must be spent to lease land or buy it outright. Once the land rights are obtained, expensive equipment like drilling rigs must be bought; infrastructure such as roads developed; and transportation modes determined, whether involving trucks, cargo ships, or pipelines to move the oil and gas to a midpoint for refining or further distribution.
Investors shouldn't just appreciate the importance of capital investments to a business; they need to incorporate it as part of their basic research into an investment opportunity. Often, companies will slow capital investment due to doubts about the economy or issues within a given segment of the economy. Investors, however, should make sure that such slowdowns are the result of larger economic forces and not a sign that a company is forgoing long-term investment plans so its financial statements can look better in the short term.
