The term capital has several meanings and it is used in many business contexts. In general, capital is accumulated assets or ownership. In simple words, capital is a large sum of money which you use to start a business or which you invest on order to make more money. You can use the term capital to refer to buildings or machinery which are necessary to produce goods or to make companies more efficient, but which do not make money directly. Basically, the term capital has several meanings and it is used in various business contexts. In general, capital is accumulated assets or ownership. The root of the term capital can be traced back to Latin, where the term was ” Capitalis ” meaning head and Medieval Latin capitale “Wealth”.
TYPES OF CAPITAL IN BUSINESS :
Business typically focuses on 3 types of Business capital namely Working capital, Equity capital and Debt capital. Capital can be held by a business in the form of financial assets or raised from debt or equity financing. In general, business capital is a core part of running a business and financing capital intensive assets. Capital assets can include cash, cash equivalents and marketable securities as well as manufacturing equipments, production facilities and storage facilities.
From a purely financial capital economics perspective, capital is typically cash or liquid assets held or obtained for expenditures. In financial economics, the term may be used in a broader sense, to include a company’s capital assets. Capital is used to provide ongoing production of goods and services for creating profit. By investing through the use of capital, a business or individual directs their money towards investments that earns a higher return than the capital’s costs. Typically, Business capital and financial capital are viewed from the perspective of a company’s capital structure. Below, three main types of capital are discussed
• DEBT CAPITAL : A business can acquire debt capital through private or government sources, by acquisition of debt. Individuals and companies must have an active credit history to obtain debt capital. Debt capital requires regular repayment with interest.
• EQUITY CAPITAL : Equity capital comes in several forms like private equity, public equity and real estate equity. Public equity capital can only be raised when a company enlists itself on a public market exchange and receives equity capital from shareholders. Private equity usually comes from select investors or owners.
• WORKING CAPITAL : Working capital includes a company’s most liquid capital assets available for fulfilling daily obligations.
IMPORTANT FEATURES OF CAPITAL :
• Capital is produced by man by saving wealth.
• Capital is a factor of production.
• Capital is transferable from one person/place to another.
• Constant use of capital ( fixed ) leads to depreciation.
• Capital is mobile as it can be moved from one occupation to another.
• Supply of capital can easily be increased or decreased, depending on the need of the business.
• As capital is man-made and not a gift of nature, one needs to toil hard to accumulate it.
• Capital is the outcome of savings. ownership