Course 201: Understanding a Business
Capital Intensity
In this course
1 Introduction
2 Barriers to Entry
3 Price Elasticity
4 Substitutes
5 Capital Intensity
6 Market Penetration
7 Regulation

The ideal business is one that gushes revenues but requires little investment in hard assets such as factories or stores. (Think Microsoft MSFT.) The more capital you must employ in order to generate an additional dollar in sales, the less attractive the business is. (That said, capital-intensive companies such as utilities and oil companies, once they get really big, have a built-in barrier to entry. What budding entrepreneur wants to raise the billions needed to compete against Alcan Aluminum AL or ExxonMobile XOM?) Like most companies in the service sector, Starbucks is not very capital intensive. It generates more than $1 in sales for every $1 in assets.

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