Question

Explain the different kinds of capital.

Hint:

Capital is of two main forms: Fixed (long-term assets) and Working (short-term needs).

Answer 1

Step 1: Meaning of capital.
Capital refers to all financial resources invested in a business for the purpose of generating income. It can be classified into various types based on nature and purpose.
Step 2: Different kinds of capital.
1. Fixed Capital:
- Used for purchasing long-term assets like land, buildings, machinery, and equipment.
- It is not consumed in a single production cycle and provides benefits over many years.
2. Working Capital:
- Used for day-to-day operations of the business such as payment of wages, raw materials, and bills.
- It ensures smooth running of short-term activities.
3. Own Capital:
- Contributed by the owners or shareholders of the company.
- It represents the permanent source of finance for the business.
4. Borrowed Capital:
- Raised from external sources such as banks, debentures, and other financial institutions.
- It needs to be repaid with interest.
5. Human Capital (Modern view):
- Refers to the skills, knowledge, and expertise of employees.
- It enhances productivity and overall efficiency of the enterprise.
Step 3: Conclusion.
Capital is the backbone of any business. Both fixed and working capital are essential for survival, while human capital ensures growth and innovation.