Capital can refer to anything that provides value or benefit to its owner, such as a factory and its machinery, patents, or the financial assets of a business or individual. Even though money itself can be considered capital, capital is more commonly associated with cash used for productive or investment purposes.
A business's day-to-day operations and future growth rely on capital. Capital may be raised through debt or equity financing or it may be generated from the operations of the business. Most businesses focus on three types of capital when budgeting: working capital, equity capital, and debt capital. Trading capital is considered a fourth component in the financial industry.
Regardless of whether it is a family, a small business, a large corporation, or an entire economy, capital is essential to its functioning. Either the current or long-term portion of the balance sheet contains capital assets. In addition to cash and cash equivalents, these assets may also include manufacturing equipment, production facilities, and storage facilities.
Capital is typically cash or liquid assets that are acquired or held for purposes of expenditure. Generally, the term refers to all of a company's assets with monetary value, such as equipment, property, and inventory. However, for budgeting purposes, capital is cash flow.
Capital can be a measure of wealth as well as a resource that provides the means to increase wealth through direct investment or capital project investments. A person's net worth can be measured by the amount of capital they possess. A company's capital structure includes debt capital, equity capital, and working capital for day-to-day expenses.
The way individuals and companies finance their working capital and invest their obtained capital is key to their success.