Capital is a broad term that can describe anything that confers value or benefit to its owners. In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services). Capital can be a measurement of wealth and a resource for increasing wealth. In general, capital can be a measurement of wealth and also a resource that provides for increasing wealth through direct investment or capital project investments.
There are different types of capital, including:
-
Financial capital: This represents obligations and is liquidated as money for trade, and owned by legal entities. It is in the form of capital assets, traded in financial markets. Its market value is not based on the historical accumulation of money invested but on the perception by the market of its expected revenues and of the risk entailed).
-
Working capital: This is the money used by a business either to meet upcoming expenses or to invest in new assets and projects. A business needs to have enough working capital to meet all its upcoming expenses. If it doesnt have enough working capital, it will default on bill payments and may have to stop trading.
-
Debt capital: This is the money that a company borrows from lenders, such as banks or bondholders, and must repay over time with interest.
-
Equity capital: This is the money that a company raises by selling shares of ownership in the business to investors. Equity capital represents a claim on the companys assets and earnings.
-
Human capital: This refers to the skills, knowledge, and experience of the people who work for a company. Investment in skills and education can be viewed as building up human capital or knowledge capital).
-
Intellectual capital: This refers to intangible assets, such as patents, trademarks, and copyrights, that a company owns and can use to generate revenue.
Capital can be cash or liquid assets being held or obtained for expenditures. In a broader sense, the term may be expanded to include all of a company’s assets that have monetary value, such as its equipment, real estate, and inventory. Capital is absolutely essential to a company getting off the ground and is like the first fill on the gas tank that will hopefully come to run a business that is profitable in the long term.
