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What Is Capital?

Views 11372022.03.02

Key takeaways

  • Capital refers to assets used by a company to create goods and services.

  • Capital is important for company growth and wealth creation.

Understanding capital

Capital is a broad term, but generally refers to the assets that a company uses to provide goods and services. A company's capital might include land, equipment, patents and other productive resources.

Capital is important because it is necessary for company operation and growth. Companies can employ their capital to produce products, generate income, and create wealth for investors.

Businesses will focus on three types of capital: Debt Capital,Equity Capital and Working Capital. Working capital refers to the capital needed for a company's daily operation. A firm couldn't stay in business if it doesn't have sufficient working capital.

In order to maintain solvency or expand production, a company can fund its business by selling shares to investors or obtaining loans from financial institutions. The capital obtained from investors is called equity capital, and the other is called debt capital.

Example

Imagine you're about to open a moomoo coffee shop. In order to supply coffee, you need to have retail space, equipment (espresso machines, industrial coffee roasters, tables and chairs) and ingredients. In addition, you also need a barista to serve customers drinks.

In this case, the store's capital might include retail space, equipment and ingredients. You coffee shop can't run without capital, let alone sell coffee to customers to generate income.

The content in this article is intended for general circulation and informational purposes only. It does not take into account the investment objectives, financial situation or needs of any particular person and should not be relied on as advice or recommendation. Information provided in this article are not specifically intended for or specially targeted at the public in any specific jurisdiction. Neither Moomoo Inc. nor its affiliates are licensed Financial Advisers and do not provide financial advice. You are advised to consult your financial adviser before making any commitment to invest in any capital markets product. The information published is not and does not constitute or form part of any offer, invitation or solicitation to subscribe or to enter into any transaction in capital markets products. Moomoo is a professional trading app offered by Moomoo Inc. In the U.S., investment products and services on Moomoo are offered by Futu Inc., Member FINRA/SIPC. In Singapore investment products and services are offered through Futu Singapore Pte. Ltd., regulated by the Monetary Authority of Singapore (MAS). This advertisement has not been reviewed by the MAS. Moomoo Inc., Futu Inc. and Futu Singapore Pte. Ltd are affiliated companies. Any illustrations, scenarios, or specific securities referenced herein are strictly for illustrative purposes. Past investment performance does not guarantee future results. Investing involves risk and the potential to lose principal.

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