posted on 06-06-2019

Capital Accumulation

Updated October 1, 2019

What is Capital Accumulation?

Capital accumulation occurs when a company acquires assets. Capital accumulation also occurs when an institutional investor or other financial institution acquires a large position in a company over time.

How Does Capital Accumulation Work?

Companies can accumulate assets in a variety of ways, and it is important to remember that assets can be physical, intangible or financial. In any case, their job is to produce revenue and profits. A company can accumulate capital by acquiring another company and/or its assets, issue shares, issue bonds, reinvesting profits, etc.

In the investing world, an institution might engage in capital accumulation by buying shares of, say, Company XYZ here and there over time until it has a substantial stake in the company.

Why Does Capital Accumulation Matter?

For companies, capital accumulation can signal preparation for growth. For investors, capital accumulation can signal interest in an acquisition or in becoming active in the company's management. For these investors, the accumulation takes place over time so as to do so "quietly" and without driving up the price of the shares suddenly.