What Is Capital?

What Is Capital?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Capital refers to the financial resources that businesses use to fund their operations and growth. It comes in many forms, including cash, equipment, buildings or other types of assets that a company can use to create value, earn revenue, or make investments. Business capital can be categorized into two main types: debt and equity. Debt capital refers to borrowed money that must be repaid over time, often with interest. Equity capital, on the other hand, involves the sale of a portion of the business to investors to generate funds.

Related Questions

1. What is the difference between capital and money?

Though often used interchangeably, money and capital are not the same. Money is a medium of exchange used for buying and selling goods or services, while capital is the financial resources used to start and grow a business. Capital usually takes the form of money, but it can also be real estate, machinery or other assets.

2. What is working capital and why is it important?

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Working capital is the funds a business uses for its day-to-day operations. It is calculated by subtracting current liabilities from current assets. A positive working capital is crucial for a business as it shows that the business can pay off its short-term liabilities.

3. What is capital structure?

Capital structure refers to the mix of debt and equity that a company uses to finance its operations and growth. An optimal capital structure balances the risks and returns of different financing sources to maximize a company’s value and profitability.

4. What are the primary sources of business capital?

The main sources of business capital are debt and equity. Debt can be obtained from banks, credit unions, and other lending institutions. Equity capital usually comes from investors such as venture capitalists, angel investors, or the business owners themselves.

5. How to attract capital for your business?

Attracting capital requires a solid business plan that showcases the potential growth and profitability of your business. You should also network and build relationships with potential investors. Demonstrating strong financial management skills and a track record of success can also help attract capital.