Capital intensive definition
/What is Capital Intensive?
An industry is capital intensive when a participant is required to invest heavily in fixed assets in order to compete with other established industry players. In a capital intensive environment, the fixed cost base of a business is quite high, so it must sell in high volume in order to earn sufficient funds to offset its costs. Another characteristic of this environment is that companies have a higher proportion of debt to equity, since they need debt funding to pay for their fixed asset acquisitions. When an industry is capital intensive, it is difficult for new players to enter the industry, so there tends to be a smaller number of competitors - perhaps to the point where the industry can be considered an oligopoly.
Related AccountingTools Courses
Financial Characteristics of Capital Intensive
A capital intensive business has a high fixed cost base, and so must generate a large amount of sales before it can turn a profit. This means that its breakeven point is high. A business with a high breakeven point is more likely to drop its prices in order to be assured of generating more sales.
Examples of Capital Intensive
Examples of such industries are oil exploration, oil refining, railways, airlines, and heavy equipment manufacturing.