What is financial capital?

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.

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

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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.
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Equity capital

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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.

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Working capital

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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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