Difference between Gross Investment and Net Investment
Gross Investment is the aggregate expenditure on capital goods during a specific time period, excluding depreciation. Put simply, gross investment refers to the total amount of money that a company has invested in specific assets or in the entire business, without taking into account any depreciation.
Net Investment, on the other hand, refers to the tangible increase in the amount of capital stock during a specific time period. Net Investment is determined by deducting the depreciation from the total investment.
Now, let’s examine some of the distinguishing factors between gross investment and net investment.
Difference Between is as Follow:
Basis | Gross Investment | Net Investment |
Definition | Gross Investment is the total amount of money spent over a period of time on buying capital goods or adding to the stock of capital. It does not include the cost of depreciation. | Net Investment is the real amount of money spent on buying capital goods or adding to the capital stock over a period of time, taking into account the effect of depreciation. |
How it is calculated | To find gross investment, add up all the money that was spent on buying capital goods. | Taking depreciation away from the gross investment gives you the net investment.. |
Depreciation | Does not take depreciation into account when figuring out the end value | takes depreciation into account when figuring out the end value |
Importance | It gives you an idea of how much money is spent on all capital goods. | Taking things like wear and tear into account, it gives a rough idea of how much money is spent on capital goods. That’s why it helps make the organization more effective. |
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