Capital
Contents |
[edit] Introduction
In classic economics, a country’s resources are called the ‘factors of production’ and are generally necessary to create goods and services (they do not form part of the final product).
The factors of production (FOP) are:
So, in this respect, strictly speaking, ‘capital’ amounts to those items that further the production process, such as tools, machinery, plant and equipment. (Some economists cite a fourth FOP: the entrepreneur, who takes the risks to organise the three factors and direct them to create new goods and services.)
However, a more contemporary definition might be the wealth (money or assets) that reveals the financial viability of an individual, organisation, or nation, and which is assumed to be available for development or investment. This may be further broken down into:
- Capital investment
- Capital employed and
- Working capital.
[edit] Capital investment
This is the amount of money (funds) that has been invested in a business (or project) to help achieve its objectives. The investment may come from the owner, shareholders, bondholders, equity investors, banks, venture capital, angel investors and lenders.
Capital investment may also refer to a firm’s acquisition of capital assets or fixed assets, such as plant and machinery.
The amount of invested capital is not usually listed as a separate line item on a firm’s balance sheet; it has to be inferred from other information in the firm’s accounting records.
[edit] Capital employed (or funds employed)
This is the total amount of capital being used in a firm to allow it to continue as a revenue-generating business. It is the total value of all the assets employed in the business and can be calculated by taking total assets and subtracting current liabilities (or fixed assets plus current assets minus current liabilities).
[edit] Working capital
This is the excess of the total current assets over the total liabilities of the firm (or current assets minus current liabilities). The formula measures a firm’s short-term liquid assets that remain after short-term liabilities have been paid off. An example would be as follows:
[edit] Current assets:
Cash £30,000
Inventories £10,000
Accounts receivable £30,000
Total £70,000
[edit] Current liabilities
Accounts payable £15,000
Short-term borrowings £10,000
Liabilities accrued £5,000
Total £30,000
So, the working capital is £70,000 - £30,000 = £40,000
[edit] Capital expenditure
Capital expenditure (sometimes abbreviated as Capex, CAPEX or CapEx) is one-off expenditure that results in the acquisition, construction or enhancement of significant fixed assets including land, buildings and equipment that will be of use or benefit for more than one financial year.
For more information see: Capical expenditure.
[edit] Capital Gains Tax
Capital Gains Tax (CGT) is levied on the profit that is made when something is sold, gifted, swapped or otherwise disposed of.
For more information see: Capital Gains Tax.
[edit] Related articles on Designing Buildings Wiki
- Budget.
- Capex.
- Capital allowances.
- Capital costs.
- Capital gains tax.
- Capital value.
- Cost plans.
- Depreciation.
- Enhanced Capital Allowance scheme.
- Net Present Value.
- Working capital
[edit] External references
Featured articles and news
Britain's underground asset register
Getting organised below the surface.
Securing suitable water systems.
Love them or hate them, they are popping up everywhere.
The initiative to enhance the environment continues.
Could underused community spaces offer an alternative to working from home?
Keeping workers and workplaces safe in the United States.
A history lesson in geographic information systems.
A low tech, easy to use method of extinguishing small fires.
How can these valued spaces be reused?
Partnership avoids the need for listed building consent.
Connecting building design from inception to completion to operations.
Gregor Harvie predicts interoperability will be construction’s Uber moment.