difference between capital in normal terms and capital in economics terms
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Answer:
Capital is a broad term that can describe any thing that confers value or benefit to its owner, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual. While money itself may be construed as capital is, capital is more often associated with cash that is being put to work for productive or investment purposes.ECONOMY ECONOMICS
Capital
By MARSHALL HARGRAVE Reviewed by BRIAN BARNIER Updated Mar 9, 2021
TABLE OF CONTENTS
EXPAND
What Is Capital?
Understanding Capital
Business Capital Structure
Types of Capital
Capital vs. Money
Capital FAQs
The Bottom Line
What Is Capital?
Capital is a broad term that can describe any thing that confers value or benefit to its owner, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual. While money itself may be construed as capital is, capital is more often associated with cash that is being put to work for productive or investment purposes.
In general, capital is a critical component of running a business from day to day and financing its future growth. Business capital may derive from the operations of the business or be raised from debt or equity financing. When budgeting, businesses of all kinds typically focus on three types of capital: working capital, equity capital, and debt capital. A business in the financial industry identifies trading capital as a fourth component.
KEY TAKEAWAYSFinancial Capital
Financial capital is a much broader term than economic capital. In a sense, anything can be a form of financial capital as long as it has a monetary value and is used in the pursuit of future revenue. Most investors encounter financial capital with respect to debt and equity. Measuring it may show both problems, or a potential turnaround.
Direct investment in a business is referred to as equity. When someone contributes $100,000 to a business in the hopes of receiving a portion of future profits, they increase its equity capital by $100,000. Equity capital is not typically accompanied by a guarantee of future returns.
The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth.
The four major types of capital include working capital, debt, equity, and trading capital. Trading capital is used by brokerages and other financial institutions.
Any debt capital is offset by a debt liability on the balance sheet.
The capital structure of a company determines what mix of these types of capital it uses to fund its business.
Economists look at the capital of a family, a business, or an entire economy to evaluate how efficiently it is using its resources.