Understanding the word CAPITAL

The word CAPITAL can be used in many different contexts in a financial discussion.

You need to know exactly in which context it is used if you are to make any sound judgements. It can be used on its own e.g. the business ‘capital’ or in phrases such as ‘capital investment’ or ‘working capital’ and in each case the meaning is totally different. You need to understand these differences to make sound business decisions.

Captial – owner’s stake in the business  (or shareholders)

Capital Investment – money that’s being considered to be spent on buying new plant, equipment or facilities

Working Capital – Current Assets minus Current Liabilities

It is prudent to find out in which context the term capital is being used.