Capital

In economics, capital refers to the monetary funding that is available for an organisation to permit the acquisition of assets such as land, premises, machinery and raw materials, as well as the costs involved in turning those raw materials into products, including paying wages. On a company balance sheet, capital appears as a "liability" in that it is technically money that is owed to the shareholders and other investors.

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Capital and assets

Capital can consist of:

• Shareholder funds, which is the amount that the organisation owes to its owners
• Retained earnings, such as profit after tax and dividend payments
• Loan capital, such as money borrowed from a bank or other investors who have bought bonds issued by the organisation

Assets are the things that an organisation requires to be able to carry out its business. They include:

• Fixed assets, normally long term investments such as land and premises, computers, furniture, machinery and so on.
• Advances or loans made to customers (especially in financial institutions) that will be paid back, normally with interest.
• Investments, such as where the company has invested in another company or bond, usually short term and easy access so that the organisation can access the funds should it need to do so.
• Cash, i.e. cash in the till that the company can keep "liquid" for short term requirements.
• Accruals, which includes money owed to the organisation in interest or in a business to business environment where 30 to 90 day payment terms are commonplace.
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