April 13, 2021

Learn what financial capital means

Capital is a catch-all term that’s used to describe a person or organisation’s wealth. It could be cash, assets or a mixture of the two.

In the business world, capital is often associated with money that is being used to invest or the assets and funds that a specific holds.

There are three types of capital that are key most businesses.

Debt capital

In simple terms, debt capital is borrowed money.

When a company borrows money from individuals, credit card companies or banks, they are acquiring debt capital.

Debt capital must be paid off at specified intervals with interest rates.

Whether or not a company can obtain debt capital will usually be decided by its prior credit history. This will also generally define the terms under which the company receives any debt capital.

Equity capital

Equity capital is a fancy way of describing money that a company receives from investments.

A company will acquire equity capital via public or private channels.

If a firm receives money from a private investor, they are acquiring private equity capital.

If a firm goes public and lists shares on a stock exchange, it will raise public equity capital from any investors that choose to buy its shares.

Working capital

Working capital is the money that a company uses to meet its short-term obligations. That might be paying office rent, salaries or debt payments.

Companies will generally have to hold liquid assets - cash or assets that can be easily converted into cash - to use as their working capital.

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