What is financial capital

Financial capital refers to economic resources or assets that can be readily converted into cash, making them liquid assets.

Forms of financial capital

It encompasses physical cash, funds in bank accounts, and various financial instruments like stocksbonds, and other marketable securities which can be easily sold or traded.

Forms of financial capital

Businesses have multiple avenues for securing financial capital:

  • Equity financing: Raising money through the sale of shares in the company, offering ownership stakes to shareholders.
  • Profit generation: Earning capital through the sale of goods or services, with the resulting profit reinvested back into the business.
  • Investment: 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.

Liquidity through asset disposal

Additionally, a company may liquidate its tangible properties and fixed assets, thus transforming them into cash. Understanding the concept of liquidity is important, as it measures a company’s ability to meet its short-term obligations.