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.