Financial Term of the Week: Capital

by AMillionPI

 

The first thing that comes to my mind when hearing the word ‘capital’ is money (that can be used to invest / enhance the power of a business).

Capital can be understood as resources that are available to achieve a specific set of goals. Capital does not always necessarily refer to money used by businesses to provide their services. It can also refer to other assets that provide an ongoing service to a business and perform economically useful work.

Examples

  • financial assets, like funds held in deposit accounts
  • manufacturing equipment
  • facilities, like buildings used to store or produce manufactured goods
  • patents
  • brand names
  • trademarks

Materials that are used and consumed as a part of the manufacturing process can not be referred to as capital, because they usually don’t provide an ongoing service to the business.

Money vs. Capital

Money and capital don’t mean the same thing. While money refers to the instrument that can be used to purchase services and goods, capital also involves the aspects of growing and shaping a business. Capital includes any assets that can benefit a business in the long term.

What do you think about this differentiation of money and capital? There are different types of capital (e.g. debt capital, equity capital, working capital, …). Do you want more details on these different types of capital?

Feel free to ask questions, comment on my thoughts and give your honest feedback. If you are interested in learning and discussing more financial terms together, let me know. Finally.. thank you for taking your time, reading this and sharing your thoughts with us!

 

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