Capital

What Is Capital?

Capital is the amount of money or assets incurred in a business to produce goods and services. Capital can be used either to initiate or to grow an existing business.

Deeper Definition

The monetary funds used in operating a business are capital, and capital can be cash or equipment. Capital is the foundation of a company. To increase wealth and sustain a business, there is a need to fund a business with enough capital at the kick-off stage and the growth stage.

Sometimes it isn’t easy to raise enough capital for a business by an individual. The other sources of capital used in a business are financial assets, brand capital, human capital, and tangible asset.

There is a relationship between capital and the asset of a business. The money used to start a business is capital, while assets explain how the capital is utilized in production to increase wealth.

There is a  distinct difference between capital and money, as capital can be in the form of assets or money used to produce goods and services that yield interests ( money put to work). In comparison, money is used to buy goods and services, not necessarily used to generate interest.

Types of Capital:

Equity capital: This type of capital is raised by selling either public( announcing shares on stocks exchange) or private shares ( shares amidst the company). 

Debt shares: The share raised by borrowing loans from banks, individuals, loaning companies, family and more is referred to as debt capital

Trading capital: Trading capital is used in financial companies where brokerage trades daily because of the need for significant capital.

Working Capital: This is the capital at work in a business. It is calculated by the difference in the current assets of a company and the current liabilities.

      Working capital= current assets – current liabilities.

Capital Example

Silas was involved in small-scale farming that only sourced food for himself and his family. He plans to make money from agricultural farming and expand it. To accomplish this, Silas obtained Debt capital from the bank and used it to buy machinery and employ laborers. At the end of the investment year, Silas had profit and made money.