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What Is The Difference Between Consumer Goods And Capital Goods Stocks?

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If you are regularly following the business news channels, you cannot miss an analyst suggesting to buy a capital goods or a consumer good stock.

Unless you are well versed these terms, how would you know which stock to buy.

So, let us understand the difference between consumer goods and capital goods.

What Is The Difference Between Consumer Goods And Capital Goods Stocks?
 

Capital goods are basically intermediary goods, they are not finally consumed by the end user. Take the classic case of power equipment major, Bharat Heavy Electricals Ltd. The company's power equipment, helps in generating power, which is ultimately used by the end user.

Capital goods help to facilitate faster production. Take the case of a company that hires men to complete digging the place for a basement slab of a building. If they use a JCB equipment, which is a capital goods product, they can dig much faster, than those that are using manual shovels.

On the other hand consumer goods are goods that are consumed by the end user. For example, Fast Moving Consumer Goods could be soaps, detergents, aswell as those which are eaten by us. These include biscuit and confectionary products.

So, the basic difference between a consumer good and a capital good would be whether the final good is an intermediary or can be consumed directly.

Let us say that a particular way of consumption of oranges. One is that it can be eaten directly, while the other would be that it can be used to make orange juice.

So, if it is used to make orange juice it would become a capital goods and if it is eaten directly, it would be consumer good. However, these days, nobody uses oranges to call them capital goods.

Capital goods are more what companies like Bhel, Siemens etc. manufacture.

So, if you are looking to buy consumer goods stocks it would be Britannia, Hindustan Unilever, ITC, Dabur, Godrej Consumer etc., while it would be Bhel, Siemens in the case of capital goods stocks.

GoodReturns.in

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Story first published: Saturday, April 16, 2016, 11:54 [IST]
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