Difference between Gross Investment and Net Investment

Gross Investment is referred to as the total expenditure that is made for buying capital goods over a time period, without accounting for depreciation. In other words, gross investment is the amount that a company has invested in particular assets or the business as a whole without considering depreciation for the same.

Net Investment, on other hand, is the actual addition that is made to capital stock in a given period. Net Investment takes into account the depreciation and is calculated by subtracting the depreciation from the gross investment.

Let us look at some of the points of difference between gross investment and net investment.

Gross Investment

Net Investment

Definition

Gross Investment is the total expenditure done for buying capital goods or adding to the capital stock over a time period, without counting depreciation

Net Investment is the actual expenditure done for addition to the capital stock or buying capital goods over a time period taking into consideration the impact of depreciation

How it is calculated

Gross investment is calculated by calculating the total expenditure done on acquiring capital goods

Net investment is calculated by subtracting depreciation from the gross investment

Depreciation

Does not consider depreciation for determining final value

Considers depreciation for determining final value

Importance

It gives an idea about how much money is spent totally on capital goods

It gives an idea about how much money is actually spent on capital goods by taking into account factors like wear and tear. It therefore helps in improving the efficiency of the organisation

This article was all about the topic of Difference between Gross Investment and Net Investment, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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