Understanding the Concept of Capital

Money is a physical product or a liquid asset that is used for transactions regarding services and goods. The word capital means any substance that is in the form of other financial assets or money which is possessed by an organisation or an individual that is accessible in a company’s start-up or investing in something. Simply the word capital means for investment or productive purposes the commodities that are being used by the owner. The word capital is used for money but it does mean that capital is simply money. Capital refers to the total resources supplied to a business by the owners. Capital helps in improving and developing the future of the business. The activities should generate sustainable revenue for the business in the long term. 

Capital in Economics

Capital in Economics means, some assets of a person like tools, equipment of transport, machine, factory buildings, etc. which helps in increasing the productivity of the goods by improving the capital equipment. Living conditions can be improved by the production of more goods. Labour, capital, land, and entrepreneurship are the four important production factors of capital. Capital also refers to liquid assets which means the cash is in hand and is accessible to spend. Capital is a term that is highly used in economics and conveys about capital’s importance in business. The capital stock of a Nation at the level of macroeconomics consists of equipment, buildings, inventories, and software in a given year. In economics, capital means the “stock” that contrasts with income is a “flow”. Capital comprises the nonmaterial elements like abilities, education, skills, etc.; human population; land buildings, and other stocks of materials. The word capital has a different meaning in the world of business; in the balance sheet, it represents an item. 

The term capital structure is used for financing the operations of a business that is the proportion of debt and equity.

Therefore, Capital Structure = Debt/ Equity

There are several types of capital, namely – natural capital, working capital, financial capital, human capital, instructional capital, debt capital, equity capital, and social capital.

• Natural Capital –

Natural capital means a type of capital that is composed of ecosystem services and natural resources of the world. As a result of this, the human wealth supply is increased.

• Working Capital –

Working capital means that for a business firm’s day-to-day operations the number of current assets is required. 

• Financial Capital –

Financial capital means that the money is dissolved for trade and is possessed by legal entities. In the financial market, it is traded in the way of capital assets. Financial capital is any economic resource measured in terms of money. It smoothens economic production but financial capital is itself not productive. 

• Human Capital –

At a point in time, human capital refers to the nation’s expertise and stock of skills. The process of formation of human capital is over time the summation of the stock of human capital. For example, the contribution of an educated person to economic growth is more than that of an illiterate person. This is the person’s personal development as well as the human capital increases.

• Instructional Capital –

Instructional capital is defined as the term is generally used in educational administration. The investment done to get the learning material is called instructional capital. 

• Debt Capital –

Debt capital is defined as starting up a business or renovating the old business by borrowing from someone; this can be achieved by government or private sources. For an established business the borrowing can be done from financial institutions or banks. But for those who are starting their business, their capital must contain online lenders, family, and friends, federal loan programs or companies, and credit.

• Equity Capital –

There are several types of equity capital. Generally, the contrasts are done between public equity, real estate equity, and private equity. 

• Trading Capital

A fundamental amount of capital is required in a business for creating and operating a minimum amount of profit in return. For financial institutions that provide a huge number of trades regularly on a daily basis trading capital is the word used for them. 

• Social Capital –

Social capital is all of the relationships that are found in society; it is the relationship between the former institutions like law and order, judiciary and so. The informal capitals are the ability to respect others, trust, etc. These are the aspects of social capital.

Conclusion

It is concluded that when an individual or an organization possesses money for investing in a company’s start-up or further development it is called capital. By improving the capital equipment, Capital in Economics means, some assets of a person like equipment of transport, tools, factory buildings, machines, etc. which help in increasing the production of the goods.