Definition of capital
Capital is wealth that constitutes a type of asset, and is used to refer to the financial strength of establishments or individuals, and capital is defined as the money used to create more wealth, or start a new project. Another definition of capital is money or other property owned by individuals or establishments, and the capital is used for the purpose of establishing an institution or company, or to invest it in various fields.
capital characteristics
Capital is characterized by a set of characteristics, and the following is information about the most important of them:
Capital is a product of human labor; It is a type of capital, such as buildings, machinery, and other human production.
Capital is one of the negative factors of production; As capital cannot provide any production without the presence of auxiliary activities for it, for example, to construct a building, there must be workers who are able to build; Therefore, capital cannot produce anything on its own.
Capital is a variable medium; That is, the value of the total supply of devices cannot be changed, but it is possible to change the value of the supply of capital in terms of increase or decrease.
Capital is affected by a decline; As its continued consumption leads to a decrease in its value.
Capital is part of the labor stock; Where the capital is used by its owners to gain wealth, the capital accumulates as a result of saving, and then part of it is spent on consumer products, and the rest is preserved.
capital accepts destruction; Where it is possible to destroy all capital products due to permanent use of them, such as the end of life of the machines and vehicles used in the company.
Types of capital
Capital is divided into a group of types, namely:
Debt capital : is the capital that a business obtains; By relying on debt, whether from private sources such as insurance companies and financial institutions, or public sources such as loans.
Equity capital: It is the capital that depends on financial investments that do not need to be repaid, and these investments include what employers provide, and contributions for selling the contents of the inventory.
Working capital : It is the difference between the current assets of the institution and current liabilities. This capital is used as a measure of the liquidity of short-term companies; That is, companies that contribute to covering their debts, and other obligations due during the year.
Commercial capital : It is the capital that is used to refer to a sum of money that has been allocated to the sale and purchase of various securities, and it differs from investment capital because it is reserved for the most anticipated projects, and the commercial capital is sometimes called.
Additional paid-in capital: It is an account located in the equity section of the entity's balance sheet, and represents the additional money paid to the company's own shares according to their face value, and this type of capital appears only When an individual buys shares directly from the entity.
capital jobs
Capital contributes to providing many useful functions for various establishments, the most important of which are:
Supply of raw materials: is the role of capital in providing supplies for raw materials; Every business sector must have a sufficient amount of raw materials, which are of good quality.
Supplying devices and machines: The capital contributes to providing the appropriate devices and tools for the production process.
Subsistence provision: by providing the means of subsistence for workers while they carry out the production process, such as providing work clothes, meals, and other necessary things.
Providing transportation: for customers to benefit from them; Like trucks and railways.
Attracting workers and employees: capital contributes to providing job opportunities for employees and workers, and this function of capital is one of the important jobs within most sectors of the economy; Whether developing or developed, it may also be one of the determinants of the employment rate in a particular country.
The importance of capital
Capital is one of the important components of establishments; Because of its vital role in the production system, which enhances its importance, which can be summarized according to the following points:
Contributing to the provision of production foundations: It is a necessity to have capital to support production; Where it is difficult for any facility to implement production without capital; It is only possible to provide materials and products through the use of machines and tools.
Supporting increased productivity: With the increase in technological development, capital has become a means for the production of many commodities; Where the high rate of productivity was associated with the continuous use of capital.
Participation in economic development: the importance associated with the strategic role of capital; Where it has a central position within the economic development; The accumulation of capital is the essence of the development of the economy sector, which contains many capitals, such as dams, factories, bridges, ports, irrigation works, and others.