Capital

Published Dec 23, 2022

Definition of Capital

Capital is defined as any asset that can be used to generate income or increase the value of a business. That means it includes both physical assets such as buildings, equipment, and inventory, as well as financial assets such as cash, stocks, and bonds.

Example

To illustrate this, let’s look at a small business owner called John. John owns a small restaurant in a small town. His physical capital includes the building, kitchen equipment, and inventory. Meanwhile, his financial capital includes the cash he has in the bank, the stocks he owns, and the bonds he has invested in. All of these assets are considered capital, as they can be used to generate income or increase the value of his business.

Why Capital Matters

Capital is essential for any business, as it is the foundation upon which businesses are built. Without capital, businesses cannot purchase the necessary equipment, hire employees, or even pay their bills. Thus, capital is essential for businesses to grow and succeed.

In addition, capital is also important for the economy as a whole. By investing in capital, businesses can increase their productivity and efficiency, which leads to an increase in economic growth. Furthermore, capital investments can also lead to job creation, as businesses need more employees to manage and operate their capital assets.