Capital Definition

Learn more about what capital is in business.

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capital definition

Today we will take a look at the definition of capital in business, the uses of capital, and the different types of capital. 

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What is capital?

Capital is money or assets that a company has on hand to finance its current operations and grow. The capital definition includes tangible and intangible assets. 

Having adequate capital has advantages that are critical to the success of any business. After all, you need money and resources to keep your business afloat. 

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What are the broad categories of capital in business?

In business, there are many ways to finance and sustain your company with capital. Let’s review two main types of business capital: financial and human. 

Financial Capital

Financial capital encompasses money and anything that has a monetary value. Financial capital includes:

Financial capital examples include actual cash and things that you can convert into cash. Further, assets that have a financial worth and that you use to make money fall into the capital category as well. 

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Equity and cash are typically preferable forms of financial capital. Why? Because they are already in a usable form to, say, pay the bills. Equipment is important for making more money by making products. But it takes longer to convert equipment into cash-on-hand, either by making and selling products or by selling the equipment. 

Business debt is a popular way to get an influx of much-needed cash, but debt capital disadvantages include long-term liability. When all is said and done, you’ll need to pay back the initial loan amount plus interest. When deciding when to take out debt to fund your business, it’s important to consider your business’s current and future ability to pay off the loan. 

Self-funding by using your own funds or by borrowing money from friends and family is also a common way to fund a startup. 

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Human Capital

As any business owner knows, money is important — but it’s the people who make it happen. After all, a latte doesn’t make itself. People are the real powerhouses, making, packing, and selling products and services. 

What is the meaning of human capital in business? It includes:

You can’t buy or sell these things directly, but without human capital, even the best-laid business plans can crumble. 

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Summary: Capital Definition

Capital in business is the financial and human assets a company uses to fund and grow its operations. Financial capital examples include cash and things with a monetary value, like inventory, shares, and accounts receivable. Human capital is the value of the people in a business in terms of their knowledge, skills, and productivity. 

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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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