Product Code Database
Financial capital (also simply known as capital or equity in finance, accounting and economics) is any economic resource measured in terms of money used by and to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based (e.g. retail, corporate, investment banking). In other words, financial capital is internal retained earnings generated by the entity or funds provided by lenders (and Investor) to businesses in order to purchase real capital equipment or services for producing new goods or services.
In contrast, real capital comprises physical goods that assist in the production of other goods and services (e.g. shovels for gravediggers, sewing machines for tailors, or machinery and tooling for factories).
Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.Constant item purchasing power accounting#CIPPA as per the IASB's Framework.5B14.5D .5B15.5D Constant item purchasing power accounting Accordingly, there are three concepts of capital maintenance in terms of International Financial Reporting Standards (IFRS):
Financial capital is provided by lenders for a price: interest. Also see time value of money for a more detailed description of how financial capital may be analyzed. Furthermore, financial capital, is any liquid medium or mechanism that represents wealth, or other styles of capital. It is, however, usually purchasing power in the form of money available for the production or purchasing of goods, etcetera. Capital can also be obtained by producing more than what is immediately required and saving the surplus.
Financial capital can also be in the form of purchasable items such as computers or books that can contribute directly or indirectly to obtaining various other types of capital.Spillane, James P., Tim Hallett, and John B. Diamond. 2003. " Forms of Capital and the Construction of Leadership: Instructional Leadership in Urban Elementary Schools." Sociology of Education 76(1):1–17. .Spillane, James P., Tim Hallett, and John B. Diamond. 2003. "Forms of Capital and the Construction of Leadership: Instructional Leadership in Urban Elementary Schools." Sociology of Education 76 (January): 1-17 The Risk Report, April 2009. Volume XXXI No. 8. IRMI . Financial capital has been subcategorized by some academics as real capital or "productive capital" necessary for operations, signaling capital which signals a company's financial strength to shareholders, and regulatory capital which fulfills capital requirements.The Risk Report, April 2009. Volume XXXI No. 8. IRMI .
Borrowed capital is capital that the business borrows from institutions or people, and includes debentures:
Own capital is private capital that owners of a business (shareholders and partners, for example) provide, sometimes called owners equity. The ownership interest is typically represented in Preferred stock shares, and may be of various types, for example:
These typically have preference over the Common stock. This means the payments made to the shareholders are first paid to the preference shareholder(s) and then to the equity shareholders.
Most indigenous forms of money (wampum, shells, tally sticks and such) and the modern fiat money are only a "symbolic" storage of value and not a real storage of value like commodity money.
When in forms other than money, financial capital may be traded on or Reinsurance with varying degrees of trust in the social capital (not just credits) of bond-issuers, insurers, and others who issue and trade in financial instruments. When payment is deferred on any such instrument, typically an interest rate is higher than the standard interest rates paid by banks, or charged by the central bank on its money. Often such instruments are called Fixed income if they have reliable payment schedules associated with the uniform rate of interest. A variable-rate instrument, such as many Mortgage loan, will reflect the standard rate for deferred payment set by the central bank prime rate, increasing it by some fixed percentage. Other instruments, such as citizen entitlements, e.g. "U.S. Social Security", or other pensions, may be indexed to the rate of inflation, to provide a reliable value stream.
Typically commodity markets depend on politics that affect international trade, e.g. boycotts and embargoes, or factors that influence natural capital, e.g. weather that affects food crops. Meanwhile, stock markets are more influenced by trust in corporate leaders, i.e. individual capital, by consumers, i.e. social capital or "brand capital" (in some analyses), and internal organizational efficiency, i.e. instructional capital and infrastructural capital. Some enterprises issue instruments to specifically track one limited division or brand. "", "Short selling" and "financial options" apply to these markets, and are typically pure financial bets on outcomes, rather than being a direct representation of any underlying asset.
So, for instance, rules for increasing or reducing the money supply based on perceived inflation, or on measuring well-being, reflect some such values, reflect the importance of using (all forms of) financial capital as a stable store of value. If this is very important, inflation control is key - any amount of money inflation reduces the value of financial capital with respect to all other types.
If, however, the medium of exchange function is more critical, new money may be more freely issued regardless of impact on either inflation or well-being.
Financial capitalism is the production of profit from the manipulation of financial capital. It is held in contrast to industrial capitalism, where profit is made from the manufacture of goods.
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