A set of concepts that governing boards and senior administrators can use in analyzing the physical capital requirements of their institutions are described, based on the study of two samples of private colleges. Attention is focused on the question of the relative adequacy of college and university cash flows for financing the capital margin. This capital component includes new equipment needs, the development of laboratories and library services--in particular the replacement of obsolete or worn-out equipment--and the renovation of existing facilities. To determine the approximate nature and scope of the type of investments encompassed by the capital margin, a questionnaire was sent to two samples of independent institutions, one sample of 121 institutions, and the other of 63. Specific concerns are a charge for capital renewal and replacement, the concept of a Deferred Maintenance Ratio, and a capital charge concept that may be useful as a financial indicator. Certain financial data are also transformed to produce a sequence of balances that in turn serve as stages, or indicators, of financial condition. Appendices include detailed information on the study methodology, the questionnaire, the data and analysis, and a bibliography. (SW)