Financial economics, definition of capital

 Definition of capital

Capital (in English: Capital) is the wealth that constitutes a type of asset, and it is used to refer to the financial strength of establishments or individuals, [1] and capital is defined as the money used to create more wealth, or start a new project. (2) ] Another definition of capital is money or other property owned by individuals or establishments. Capital is used for the purpose of establishing an institution or company, or for investing it in various fields. [3]

Capital characteristics

Capital is characterized by a set of characteristics, and the following information about the most important of them: [4]

Capital is a product of human labor; It is a type of capital, such as buildings, machinery, and other human production.

Capital is a negative factor in production; As the capital cannot provide any production except with the presence of auxiliary activities for it, for example, to construct a building, there must be workers who are able to build; Therefore, capital cannot produce anything on its own.

Capital is a variable medium; That is, it is not possible to change the value of the total supply of devices, but it is possible to change the value of the capital supply in terms of increase or decrease.

Capital affected by decline; Its continued consumption leads to a decrease in its value.

Capital is part of the stock of labor; As the capital is used by its owners to gain wealth, the capital accumulates as a result of saving, and then part of it is spent on consumer products, while the remaining part is preserved.

Capital accepts destruction; Where it is possible to destroy all capital products due to their permanent use, such as the expiration of the useful life of the machines and vehicles used in the company.

Types of capital

Capital is divided into a group of types, namely: [5]

Debt Capital: It is the capital that a business obtains. By relying on debt, whether from private sources such as insurance companies and financial institutions, or public sources such as loans.

Equity Capital: It is the capital that depends on financial investments that do not need to be paid. These investments include what employers provide, and contributions for selling the contents of the stock.

Working capital (English: working capital): is the difference between the current assets of the corporation and current liabilities, and this capital is used as a measure of the liquidity of the short-term companies. That is, companies that contribute to cover their debts and other obligations due during the year.

Commercial capital (in English: Trading Capital): it is the capital that is used to refer to a sum of money that has been allocated to the buying and selling of various securities, and it differs from investment capital because it is reserved for the most anticipated projects, and it is sometimes called commercial capital as financing.

Additional Paid-In Capital: It is an account that is located in the property rights section of the entity's balance sheet list, and it represents the additional financial amount paid to the company's private shares according to their nominal value, and this type of capital appears only When an individual purchases shares directly from the entity.

Capital functions

Capital contributes to providing many useful jobs for various enterprises, and the most important of these jobs are: [6]

Supply of raw materials: it is the role of capital to provide supplies for raw materials; Every business sector must obtain a sufficient quantity of raw materials, which are distinguished by their quality

Post a Comment