What does capital gains refer to?

Capital gains refer specifically to the profit that an investor realizes when they sell an asset, such as stocks, bonds, or real estate, for more than its purchase price. This increase in value from the original investment to the sale price is considered a gain, hence the term "capital gains."

When an asset appreciates and is sold, the difference between the original purchase price and the selling price constitutes the capital gain. This concept is critical in finance and investing because it allows individuals and businesses to understand how their investments perform over time, contributing to their overall financial growth.

In contrast, the other options discuss different financial concepts. Interest earned on savings accounts refers to the income generated from deposited funds, whereas income generated from dividends pertains to earnings distributed by companies to their shareholders. The total value of a company’s assets focuses on the balance sheet and does not specifically relate to the profit realized from selling investments. Thus, understanding capital gains is essential for investors who are considering the profitability of their investment decisions.