What is capital?
Capital is the money or other assets of value (usually stocks, bonds or other securities that can be readily converted to cash at an easily established market value), which shareholders invest in a business to enable it to operate. The capital of an established corporation is normally defined as the contributions of the shareholders plus accumulated profits. It is the total book worth of the enterprise after all liabilities are deducted.
To operate any type of business activity, you need things. These things are different from business to business, but usually include equipment, tools, office equipment, vehicles, computers, etc. These assets are purchased with money. This money is usually referred to as capital. Capital initially comes from two places: the owner and others. Capital that comes from the owner is termed equity. Capital that is gotten from banks or other lenders is called debt. The total equity and debt of a business makes up its total capital at the start of a business. As the business operates and makes profits, the portion of these profits that is kept in the business adds to the capital. This addition of retained profits is called “retained earnings.” For more information on this topic, contact your local SBDC.
