Types of Capital
The four major types of capital include:
- Working capital
- Debt
- Equity
- Trading capital
Trading capital is used by financial institutions, including brokerages. Debt capital is offset by a debt liability on the balance sheet. A company’s capital structure determines the capital mix it uses to fund its business.
Applications and Examples
Economists evaluate the capital of a family, a business, or an entire economy to assess the efficiency of resource utilization. Capital can be anything that provides value or advantage, such as:
- Physical assets like a factory and equipment
- Intellectual property like patents
- Financial assets
Although money can be considered capital, the term typically refers to money used for production or investment.
The Four Factors of Production
The four factors consist of resources required to create goods or services, contributing to a country’s gross domestic product (GDP). These factors include:
- Land
- Labor
- Entrepreneurship
- Capital
Capital, in this context, encompasses a range of financial assets and is one of the three factors commonly discussed in economics alongside land and labor.