Capital goods are physical assets used to generate and sustain a company's production process, as well as the services it provides. Companies purchase capital goods in order to expand, modernize, and make their productivity more efficient. Capital goods may include both tangible items, such as machines, vehicles and tools, and intangible items, like intellectual property.

Capital goods are typically used in the production of consumer goods, and the services sector, such as those used by hairstylists or coffee shops. Although intangible capital goods, such as patents and software, generate income for a company, it is the tangible capital goods, such as computers and heavy construction equipment, that are used to physically create products and services.

The purchase of capital goods is commonly referred to as capital expenditure. This expense is amortized over a number of years to allow a company to accurately account for the cost of the asset and fully depreciate it before it needs to be replaced. Although the purchase of capital goods is generally considered a large expense for a company, it’s important to remember that without them, the company would not be able to grow and remain competitive.

Capital goods are important components of a company’s overall production process and its bottom line. Without capital goods, a firm cannot produce goods and services, have an efficient output, reduce cyclic regular costs, or obtain a competitive edge in the market. Purchasing these items is important for the long-term stability of a firm and its survival in the market.