How to Define Capital

Capital is defined differently in the various realms of business. From the banking industry to personal finance, capital is what we all strive toward.

Difficulty: Easy

Instructions

1. Understand personal capital. Your personal capital can be defined as the difference between the monies you owe and the assets you own. If you own $100,000 in assets and you owe $25,000 you will have $75,000 in capital.

2. Know business capital. Business capital is again the difference between the assets of the company and the monies owed. Most businesses operate within the term of working capital. Working capital is the difference between the current assets and the current monies owed.

3. Define banking capital. In the banking industry, capital is defined as the financial strength of a bank. This strength is calculated by the funds invested in the bank in conjunction with retained earnings.

4. Understand finance capital. In the finance world, capital is considered the business owner's part of the profits. This profit is calculated by combining the value of the owners portion of the business with the monetary profits.

5. Consider the word "capital." The word capital essentially means an amount of money used to purchase a longer term investment.

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