ZIMSEC O Level Business Studies Notes: The nature,importance and uses of capital
- The word capital has a lot of meanings
- In business it is used to refer to either:
- Money/Assets that are used to start a business
- It is also used to mean the factories, machinery and equipment (often known as Property, Plant and Equipment) owned by a business and used in production.
- It also includes working capital
- Capital is therefore not just money, it also includes assets that are actively used in a productive capacity by the business
Importance and uses of capital
- Capital has many uses in a business
- It is used to:
- Start up the business, without capital there is no business to talk about
- Acquire new assets to be used in the business
- Expand the business by establishing it into new locations
- Purchasing inventory (otherwise known as stock) for sale by the business
- Hiring new staff
- Training new staff
- To pay wages and salaries
- Purchasing new equipment so that the business can gain and maintain its competitive edge
- Pay its taxes and meet its other fiduciary duties
- Conduct Research and Development
- Develop new products
- Maintain an adequate level of working capital
- Update and repair its current assets and equipment
- Pay dividends and interest on current equity and debt holders
- There are many uses of capital and these are just a few of them.
- NB A business cannot exist without capital.
- A business that runs out of capital or fails to raise enough capital will eventually face forced liquidation
To access more topics go to the O Level Business Notes page.