Capital is amount invested by an owner in the business . It is also used as a term for the value of investments. The purpose of capital is to provide financial security and support for the businesses operations.
There are different types of capital, including:
- Equity capital
Equity capital is the portion of a company's ownership that represents the residual value of its assets after liabilities are paid. This type of capital is provided by the owners of a company, and it represents their commitment to the success of the business.
- Debt capital
Debt capital is the money that a company borrows in order to finance its operations. This type of capital is typically provided by financial institutions, such as banks or credit unions. The terms of debt financing can vary, but the most common type of debt capital is a loan. The repayment schedule and interest rate are usually fixed, which makes debt capital a predictable source of funding.
- Working capital
Working capital is the amount of cash that a company has on hand to pay its bills. This includes money that is owed to suppliers, employees, and other creditors. A company's working capital can be a good indicator of its financial health, as it shows how much cash the business has available to meet its short-term obligations.