Definition of capital


  • 1 Definition of capital
  • 2 capital characteristics
  • 3 types of capital
  • 4 positions of capital
  • 5 The importance of capital
  • 6 References

Definition of capital

Capital ( in English: Capital) is the wealth that form a kind of asset, and is used to refer to the financial strength establishments or individuals, [1] defines capital that is the money used in the manufacture of more wealth , or start a new project. [2] Other definitions of capital are money or other property owned by individuals or enterprises, and the capital is used for the purpose of establishing a company or company, or to invest it in a variety of areas. [3]

Capital characteristics

Capital is distinguished by a group of characteristics, and information on the most important of which follows: [4]
  • Capital is a product of human labor. It is a type of capital , such as buildings, machinery, and other human production.
  • Capital is one of the negative factors of production. The capital can only provide any production with the presence of auxiliary activities for it. For example, to create a building, there must be workers who are able to build; therefore the capital cannot produce anything on its own.
  • The capital is considered a variable means, i.e. it is not possible to change the value of the total supply of devices, but it is possible to change the value of the supply of capital in terms of increase or decrease.
  • Capital is affected by depreciation, as its continued consumption leads to a decrease in its value.
  • Capital is part of the business’s stock. Capital is used by its owners to earn wealth, and capital accumulates as a result of saving , and then part of it is spent on consumer products, while the rest is preserved.
  • Capital accepts destruction, as all capital products can be destroyed because of their permanent use, such as the end of life of machinery and vehicles used in the company .

Types of capital

Capital is divided into a group of types, namely: [5]
  • Debt Capital: This is the capital obtained by business, by relying on debt, whether from private sources such as insurance companies and financial institutions, or public sources such as loans .
  • Capital stock ( in English: Equity Capital): is the capital , which depends on financial investments that do not need to pay off, and include such investments as provided by employers, and contributions for the sale of the contents of the inventory.
  • Working capital (English: Working Capital): is the difference between the institution's current assets and current liabilities, and this capital is used as a measure of the short-term liquidity of companies; that is, companies that contribute to covering their debts, and other liabilities due during the year.
  • Trading Capital (English: Trading Capital): The capital used to refer to a sum of money that has been allocated to sales and purchases of various securities, and differs from the investment capital because it is reserved for the most anticipated projects, and sometimes called the commercial capital called financing .
  • Additional Paid-In Capital: It is an account that is found in the property rights section of the facility's balance sheet , and represents the additional money paid to the company's private shares according to their nominal value, and this type of capital only appears When an individual purchases shares directly from the entity.

Capital jobs

The capital contributes to providing many beneficial jobs for the various establishments, the most important of which are: [6]
  • The supply of raw materials: it is the role of the capital to provide supplies for raw materials, as each business sector must have sufficient quantities of raw materials, which are characterized by having a good quality.
  • The supply of devices and machinery: The capital contributes to the provision of devices and tools appropriate to the production process.
  • Providing subsistence: by providing workers with the means of living while carrying out the productive process, such as providing work clothes , meals, and other necessary things.
  • Providing transportation : for customers to benefit from it, such as trucks and railways.
  • Attracting workers and employees: The capital contributes to providing job opportunities for employees and workers, and this capital function is an important job within most sectors of the economy, whether developing or developed, as it may be one of the determinants affecting the percentage of employment in a particular country.

The importance of capital

The head of capital of the important components of the facilities; because of its vital role in the production system , which enhances the importance of summarizing according to the following points: [6]
  • Contributing to providing the foundations of production: it is one of the necessities of having capital to support production, as it is difficult for any establishment to implement production without capital, as materials and products can be provided only through the use of machines and tools.
  • Supporting increased productivity: With the increase in technological development, capital has become a means of producing many commodities. The increase in the productivity rate has been associated with the continuous use of capital.
  • Participation in economic development : is the importance associated with the strategic role of capital, as it has a central position within economic development, as capital accumulation is the core of the development of the economic sector , which contains many capitals, such as dams, factories, bridges, ports, and irrigation works , And others.

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