- Definition of Capital
- What do you mean by capital in business?
- What are the types of capital?
- Examples of capital
Definition of Capital
Capital is a crucial term used in finance that supports a business in running its day-to-day business operations. In a broad manner, capital or financial capital is anything that bestows value to its possessor or legal owner, such as Company cars, Factory, Machinery, Equipment, Patents, Bank accounts, Brand names, Stocks, Bonds, Financial assets, or even a Software if any.
Capital or financial capital can be pursued from different sources of assets. For example, angel investors, family, and friends, personal savings, IPOs, venture capitalists, etc.
From the economists’ perspective, capital helps evaluate the future scope of a business. By seeing the capital structure of a business, economists derive sustainable values and inputs. Capital itself is a tangible asset that helps economists analyze to make future business decisions.
What do you mean by capital in business?
Business capital is mainly procured in two ways. The first is by obtaining capital from the business operations, and the second is by getting capital through any debt or equity structure. To get in-depth knowledge of a business or company’s financial standing, it would be good if you check the balance sheet of that company. The balance sheet of a company possesses some key metrics that help you analyze the capital structure. It shows the financial liabilities or obligations of a business.
Moreover, the capital structure also represents the equity and debt structure of a company or business that helps future investors to give a fair valuation to a business.
Business capital involves the total amount of financial assets that are involved in producing any goods in a factory or services offered by a business or organization.
What are the types of capital?
In accounting, the working capital is a popular financial metric that usually expresses the current operating liabilities of a company or business, or any legal entity.
The working capital is evaluated by subtracting the Current Liabilities from the total Assets owned at the present date, i.e.,
Present Assets – Present Liabilities
Inventory + Accounts Receivable – Accounts Payable
The term “equity capital” refers to a financial asset that represents the ownership of legal entities not deployed by any debt or any other obligations of a company.
In the case of Equity capital, the last right for the complete assets of a business is reserved for the investor or shareholder. That is why it is also known as residual capital in general.
Trading capital is a common term that is often used by financial institutions or brokerage firms. Trading capital represents the total amount of money for purchasing or selling perspectives used by any firm or individual. It is a piece of important information, especially for traders, so that they can make out how much optimal cash they’ll require for a successful business.
Examples of capital
Check out the following examples of Capital:
Stocks, Bonds, etc.