What does 'capital gain' refer to in financial terms?

'Capital gain' in financial terms refers to the profit earned from the sale of an asset that has increased in value. When an asset such as stocks, real estate, or other investments is sold for a higher price than its original purchase price, the difference is recognized as a capital gain. This concept is crucial in investment and taxation, as capital gains are often subject to taxation, and investors aim to realize these gains to increase their overall wealth.

Understanding capital gains is fundamental for anyone involved in financial planning and investing, as it directly affects investment strategies and financial outcomes. The process of calculating capital gains involves determining the original cost of the asset, accounting for any improvements or adjustments, and then comparing it to the selling price to assess the profit made. This foundational concept helps investors gauge the performance of their investments over time.