Capital is a term used for the money and the value that individuals and businesses have, such as money in the bank and property.
Capital is one of those words that can mean many different things, and it also depends on whether you’re talking about personal or business finances. Generally speaking, it refers to the accumulation of wealth and property.
Different types of capital
Financial
This is used to refer to assets in a business that can be easily converted into cash. These assets are also called liquid assets. Examples are stocks and bank deposits.
Physical
Physical capital are tangible assets, such as machinery, inventory, tools, and property. These assets are called fixed assets. They take longer to sell, which makes them less liquid compared to financial assets.
Working
Working capital is the difference between a business’ assets—such as financial and physical—and its liabilities. Liabilities are what your business owes, such as unpaid invoices and debt.
Debt and equity
A business’ capital can come from the profit it generates by selling goods or services, or be raised from debt and equity financing.
Debt capital is money that has been borrowed, typically from banks, and needs to be paid back. Equity is the value that the owners have put into the company. This can include funds invested when the business first started or profits that have been reinvested into the company over time.
When setting up a budget, businesses of all kinds typically focus on three types of capital: working, debt, and equity.
Capital for individuals
As an individual, it’s used to refer to your wealth, such as property you own, assets you have, and money you’ve got in the bank.
When it comes to personal finance, equity—in other words, your savings—is especially important when buying property. How much equity you have, impacts how much you can borrow and what you can afford.