Financial capital refers to economic resources or assets that can be converted into cash, making them liquid assets.
Forms of financial capital
There are many different types of financial capital. It does not have to be money you have in the bank at the moment. It can be physical cash, funds in bank accounts, and various financial instruments like stocks, bonds, and other marketable securities which can be easily sold or traded.
Different types of financial capital
A company can secure financial capital in different ways.
- Equity financing: Money from the sale of shares in the company, offering ownership stakes to shareholders.
- Profit financing: The capital your business earn through sale of goods or services. Your company can use the profit and reinvested back into the business.
- Investment financing: Attracting funding from external investors who are interested in the growth potential of the business.
- Debt financing: Seeking various lines of credit or loans that provide immediate capital, to be repaid over time with interest. This can for example be factoring or invoices sales.
Liquidity through asset disposal
Additionally, a company may liquidate its fixed assets, and then transforming them into cash. Understanding the concept of liquidity is important, as it measures a company’s ability to meet its short-term obligations. Read more about liquidity and why it matters.
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