Capital Accumulation is method of equalizing multiple investment opportunities with differing time periods, cash flows, and initial investment amounts and allows the investor to compare these opportunities in terms of accumulated dollars, rather than rate of return.  This allows for a true "apples-to-apples" comparison of differing investment opportunities, enabling the investor to select the best alternative.

For each investment opportunity being considered, Capital Accumulation  1. discounts negative cash flows to the present; 2. compounds positive cash flows to the end of the holding period; 3. equalizes any differences in the holding period (investments with shorter holding periods are compounded forward to the holding period of the longest-held investement); 4. equalizes size differences in the initial investments by compounding the difference forward to the end of the holding period.

For discounting sums back to present value, a "safe rate" is used; the rate that can be obtained in an outside low-risk liquid investment, such as a pass book savings account or a very short term CD.  This procedure guarantees the availability of funds to cover future anticipated negative cashflows.

For compounding sums forward to the end of the holding period, a "reinvestment rate" is used; generally higher than the safe rate, can be of higher risk and not as liquid. 

Once these steps have been taken, all dollars are accounted for, inside and outside each investment and a true comparison can be made between different investment alternatives.