What is the main component of capital recovery in financial management?

Capital recovery in financial management refers to recovering the initial investment in an asset over time through various means such as cash inflows generated by that asset. The principal repayment is a critical part of this process because it involves returning the actual amount invested in the asset. This ensures that the investor recovers their upfront capital as the project or investment generates returns.

In contrast, while asset depreciation is an important concept that reflects the reduction in value of an asset over time, it does not directly relate to the process of capital recovery. Investment return pertains to the profits derived from the investment, which follows the recovery of the initial capital rather than being a component of the recovery process itself. Raising operational costs, although relevant to overall project finances, is not a component of capital recovery; instead, it pertains to the operational aspect and management of ongoing expenses associated with the asset. Thus, the focus on principal repayment emphasizes the fundamental goal of capital recovery: ensuring that the original investment is recouped.