I’ve googled the definition of capital and it seems to have different meanings depending on the situation or context (business, economics, finance). The main thing that confuses me is whether it refers to money/funds or assets, or both… It would be great if someone could share a few definitions here, and describe how they are relevant to each situation, and how they relate to each other. Sorry for the noob question but really want to see if anyone could clarify this!
In: Economics
capital is the book value invested into a business by ownership. on a balance sheet a business can have assets like cash on hand and equipment, and liabilities like a loan or accounts payable. the difference between what you have and what you owe is referred to as owner’s equity in the business. that amount is also called ‘capital’.
capital is also a type of expenditure, basically money spent to increase the assets in the example above. so spending on a production machine is often called ‘capital investment’ while spending on payroll is just an expense.
capital is also loosely used to describe the amount an investor has to invest. this really originates from the first example too, but in this case its the free funds you can gather to make an investment. this use is related to the phrase ‘raising capital’.
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