The concept of capital

What is Capital?

Investment and financial capital

Investment is the amount that is paid by the investor to obtain securities from establishments or any entity with the aim of obtaining a profit return, such as stocks and bonds, and investment may be by owning fixed assets with the aim of achieving a profit return as well, that is, investment is investing capital to obtain Financial return, as for financial capital, it can be defined as money, credit, or any form of financial resources that build wealth, and individuals use financial capital to invest by making a down payment on a house or creating a retirement portfolio, During the article, the concept of capital, its types and methods of investing it will be learned. 

The concept of capital

The concept of capital refers to the financial resources that companies can use to finance their operations, such as cash, equipment, supplies and other resources, and these are the assets that allow companies to produce goods or services to sell to customers, and the concept of capital can be defined as a vital source of financing through all types of business because Companies need these resources to organize work. Companies increase capital by issuing stocks and bonds to investors wishing to buy these financial instruments in cash or through other assets, and it is important to distinguish money from capital because they are different, as capital is more permanent than money and is used To produce something and build wealth, property rights give capital value and allow it to generate income and build wealth. Examples include fittings and equipment, patents, buildings and land. 

As an illustrative example of the concept of capital, suppose that X is the CEO of a group of large companies that have diversified lines of business in the insurance and energy industries, and that want to build a new power plant and need financing in the next year, and the majority of managers at X have submitted several proposals with a total amount $ 100,000,000. This cost is vast and should be funded this year to expand the business. To obtain financing, the CEO must use various resources, including cash and short-term investments owned by the company, in addition to selling the company's shares to new investors, and it is an actual huge conglomerate. X be well aware of the cost of capital that it is sourcing, and always strive to have an optimal cost structure. 

Consulting with internal experts, X decides that in order to raise the capital the company needs, $ 20,000,000 of the cash available to the company will be used, in addition to the $ 40,000,000 of AAA company bonds. Finally, new shares are issued to investors. Using these three resources, cash, company shares, and investments, it becomes X is able to raise sufficient funds to build the new terminal that will generate income for the company and new investors. With this, the concept of capital can be abstracted that capital consists of assets and resources, such as cash and supplies, which the company can use in its business to produce goods and services. 

Economics and capital theory

Like monetary and international economics, the labor economy is an old economic specialization, the reason for its existence came from the characteristics of work as a commodity, unlike land or machines. Work itself cannot be bought or sold, but rather is rented or rented, and since people cannot separate from their services, so it plays differently. Non-monetary considerations played a hidden role in the sale of labor services. For several years the labor economy was concerned only with the demand side of the labor market, and this one-sided view saw that wages are determined by the marginal productivity of workers through the relationship of production and consumer demand, and it was believed that trade unions could only raise Wages by limiting the supply of labor, and in the latter part of the twentieth century, the supply side of the labor market attracted the attention of economists who moved from the individual worker to the household as a provider of labor services.

The increase in the number of married women who entered the workforce and the large discrepancies and fluctuations observed in the rate of female participation in the workforce drew attention to the fact that an individual's decision to offer work is strongly related to the size, age composition and living capacity of the family to which he belongs, so the concept of human capital is that People make capital investments in their children and themselves in the form of education or training to search for better job opportunities, and they are ready to go to other labor markets. The theory of capital has since become the dominant analytical tool in the labor economist, to replace or complement the traditional theory of behavior The consumer, the education and training economy, the information economy, the migration economy, and the health economy are some of the products of capital theory. 

Types of capital

Through the concept of capital, companies or individuals employ capital to achieve a return. There are many types of capital, including borrowed capital, which is for the company or individual to obtain the capital through friends, family, private institutions or insurance companies And one of the types of capital is also working capital, which is the difference between the current assets of the company and the current liabilities, as working capital measures the short-term liquidity of the company and specifically the company's ability to cover its debts accounts payable and other obligations during the financial year, in other words, it is capital The worker is a glimpse of the financial capacity of the company.

The concept of working capital, which is also one of the types of capital, refers to the amount of money allocated to buying or selling various securities. In general, the concept of working capital differs from the ideas of investment capital because it is dedicated to more speculative projects. Working capital is sometimes referred to as financing, Investors may try to add to their current capital, by employing a variety of systematic trading methods, and these methods try to achieve the best use of capital by determining the ideal ratio of financial resources to be used each time. Traders need to determine the optimal cash reserves required in their strategies. Investment. 

Ways to invest capital
After the concept of capital has been identified, the methods of capital investment will be identified. Investment is the allocation of financial resources for the asset or capital for a commercial or real estate project or any type of project with a profit return on investment, and the following points will show some ways to invest capital : 

Stocks and bonds

The shareowner of a company, the "buyer" becomes a partial owner of the company, meaning that he has a share of the number of his shares. The owners of the company’s shares are known to the shareholders and can participate in its growth and success by participating in assessing the value of the share price and the dividends distributed to shareholders from the company’s profits. Bonds are debt obligations of parties such as Governments or companies, and buying the bond indicates that the investor owns a share of the investee’s debt and is entitled to receive periodic interest payments and return the face value of the bond on the maturity date.


Funds are grouped instruments managed by investment managers, which enable investors to invest in stocks, bonds, commodities, etc., and the two most popular types of funds are investment funds and ETFs. Investment funds are not traded on the stock exchange but are estimated at the end of the trading day, As for index-traded funds, they are traded on the stock exchange like stocks and are valued continuously throughout the trading day, and other types of combined investments are REITs. This type invests in commercial or residential real estate, and profits are distributed to investors regularly from rental income received from these properties, In general, it is possible to invest in any of the stock market products.

The question of how to invest is summarized as whether the investor is a "Do-It-Yourself" DIY type or a type that prefers to manage his money by a professional. Many investors who prefer to manage their money on their own have accounts with discount brokers because of their low commissions and ease of the procedure. Trades on their platforms, and in general, investors who prefer professional money management have wealth managers who take care of their investments, and wealth managers usually charge their clients a fee from the percentage of profits from properties under the supervision of AUM management.

0/Post a Comment/Comments

Previous Post Next Post