Capital

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1. Financial accounting.

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 a firm.

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 legitimately interested 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' refers 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'.


See also