Capital
Capital has a wide range of meanings, depending on the context.
For example, it may include financial resources, capital goods such as transport infrastructure, and human capital including knowledge, skills and relationships.
1. Financial reporting.
In financial accounting, capital is money the business owes the owner.
This is equal to assets minus liabilities (including debt).
In other words, the equity.
Equity capital funds the net assets of the business.
It also acts as a buffer to absorb losses or other deficits, to support the business to continue its operations following financial stress.
2. Corporate finance.
More broadly in the corporate finance context, 'capital' is the total amount of funding available for the operations of an organisation.
This includes both its debt and its equity.
3. Company law.
More narrowly in company law, 'capital' is the component of the total equity represented by the share capital of the company.
4. Regulation.
In the regulatory capital context, 'capital' means what the particular detailed regulations say that it means.
Here as elsewhere, care and consistency in definitions is essential.
Regulations and related supervision specify minimum mandatory amounts of capital, held for the protection of direct stakeholders and the wider community.
5. Economics.
'Capital' is one of the 'factors of production' in economics, the others classically being labour, land and enterprise.
In this context, 'capital' traditionally referred to the things that have been created to help in the production process, like machinery, factories and transport facilities. These things are sometimes known as 'capital goods'.
Human capital, natural capital and social capital are also fundamentally important parts of economic capital.
6. Individual capital.
The valuable and productive longer term resources available to an individual including their knowledge, skills, relationships, physical and financial resources.
7. Sustainability - Forum for the Future.
The Forum for the Future identifies five areas of capital in a model designed as a "framework for sustainability".
The five areas of capital in this model are:
- Human capital
- Social capital
- Manufactured capital
- Financial capital
- Natural capital
8. Integrated reporting - six capitals.
Other models and frameworks have additional categories of capital.
For example, the International Integrated Reporting Framework identifies intellectual capital as a separate form of capital.
This makes a total of six forms of capital in the integrated reporting framework.
In this framework, social capital is described as social and relationship capital.
See also
- Assets
- Book value
- Capital account
- Capital adequacy
- Capital allowances (tax)
- Capital asset pricing model (CAPM)
- Capital employed
- Capital expenditure (capex)
- Capital gain
- Capital goods
- Capital instrument
- Capital intensity
- Capital lease
- Capital management
- Capital market
- Capital mobility
- Capital rationing
- Capital Requirements Directive
- Capital structure
- Capital to labour ratio
- Capitalisation
- Capitalism
- Corporate finance
- Cost of capital
- Debt
- Debt capital
- Enterprise
- Equity
- Equity capital
- Equity cost of capital
- Factors of production
- Finance
- Financial asset
- Financial capital
- Financial liability
- Financial markets
- Financial risk
- Forum for the Future
- Funding
- Human capital
- Intellectual capital
- Interest
- Investment bank
- Labour
- Land
- Liabilities
- Liquidity
- Manufactured capital
- Market value
- Money
- Natural capital
- Primary market
- Regulatory capital
- Return
- Revenue
- Secondary market
- Share capital
- Six capitals
- Social capital
- Working capital
