What is financial capital?

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.


More terms

Oligopoly

A situation in which a market or industry is controlled by a small group of companies.
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Stock Market

A place where shares of publicly listed companies are traded.
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Volatility

A measure of how much the prices of an asset or index vary over time.
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Leverage

A method of trading using borrowed money that usually involves a very high level of risk.
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Wall Street

A street in New York that became a figure of speech for the financial markets of the US.
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Key Information Document (KID)

A document issued by an investment fund to help investors determine if it's the right fund for them.
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DMO

The United Kingdom Debt Management Office. It’s an executive agency responsible for managing the government’s debt and cash needs, primarily through issuing gilts and Treasury bills.
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LSE

London Stock Exchange, which was founded in 1571 and now has a market cap of almost $5 trillion.
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Professional Client

An investor that is able to meet several regulatory criteria.
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