Capital

Financial Dictionary -> Investing -> Capital

There are many definitions and branches to the word capital, but it is essentially just another word for money or cash, but more specifically related to a business.

To go more in depth it means the monetary value of everything in a business, including pure cash itself. Business profits are considered capital, more commonly when retained in the business for future use. A piece of machinery is also a capital because it can be sold.

Another definition is the value of everything involved with the production process, from buildings to machinery. In other words the cost of maintaining everything that is required to make the business run. A capital intensive business is one that requires a lot of money to keep it running and producing and is at risk of failure if it runs out of money before inventory can be sold. These are called cash flow problems and the business may seek an overdraft.

Working Capital is the value of a business' current assets (assets such as stock, inventory and machinery that can be sold in a short term to make money) minus its current liabilities (money owed to suppliers, outstanding loans etc). It shows the business' ability to make cash and how efficient it is when relying on sales.

Capital is often used flippantly and can mean lots of different things, but generally it is used to determine if a business has enough money to run efficiently. 'Do I have enough capital to invest, starting up and running my own business?' That basically means do you have enough money, but is referring more specifically to the money needed to start production. Selling X number of products may make you a profit, but if you don't have enough capital to finish production then you'll run into cash flow problems.