Capital is called the “Life Blood” of an organization. Capital is essentially needed by an organization which is profitable or non-profitable. Capital is the money or a monetary value by which a firm runs its activities is called the capital of the concerned firm.
- Adam Smith, “The amount of asset-loan that an owner invests to earn is called capital.”
- Robert E. Hall, “Capital is the long-lasting tools used in producing goods and services.’
The total of cash, bank balance, receivables, movable or immovable, visible or invisible properties and their monetary value is the capital of an organization.
In used term, the capital of a company can be classified two categories.
Such as- (a) fixed capital and, (b) working capital.
Fixed Capital: It is the portion of the total capital that is employed to buy long-term asset activities or capital items. In general, the fixed capital is employed for more than one year. Capital items are furniture, land, machinery, truck, plant etc.
Working Capital: The part of the total capital that is used in day to day activities is known as working capital. It is essential for running the business. The vital parts of using working capital are raw materials, petty cash, current account, wages, rent, compensation etc.
From the above discussion, we can say that for running a business both the fixed and working capital is important because with this capital a firm’s profitability and risk are highly related. An equitable combination of fixed and working capital is desired for the efficient and effective journey of a business.