There are very few businesses in the world that can be started without any money. Every idea will need some kind of investment to start, expand and make it viable and its functioning. Whether it is a small bakery or a service provider, some money needs to be invested.The entrepreneurs need to purchase raw material, labor or people to provide the services and then the entire paraphernalia associated with starting a business and maintaining it. We can look at it as the resources needed to start any business.
Various concepts associated with it
Financial capital is a very broad term and people interpret and understand it in many ways. It includes many types of resources, initial and ongoing, one time or recurring, short-term and long-term investments. The umbrella includes one or many kinds of resources, depending on the type of business whether it is, retail, small or big corporate company, services or product based industry.
Financial capital in maintenance
This is the money that includes invested money, the purchasing power of the company. This is the information that can be calculated mathematically. How much money does the business need to start the business? How much reserve should it have, as it needs to replenish its resources from time to time? The last point is the framework that helps to create the statements for maintaining all the details.
Value of Financial capital
Once the money is invested there is a notional value attached to it. There are tangible factors as well. Any money if invested attracts some kind of income in the form of interest. If the entrepreneur takes a loan from a lender he has to pay the interest to the lender. Another aspect of this value is the factor of time. Money is devalued due to inflation and other factors but may appreciate, if invested wisely. This financial capital is after all money invested in a venture and represents the wealth or purchasing power.
What are the ways can we calculate the capital?
The capital also includes the goods produced by a company. So if the company produces more goods than their immediate requirement then, these should be included in the financial capital calculations. Similarly, we can include, all the purchasable items like the resources that help in the production of goods or and providing the services and help the employees improve their productivity. These include the machines, computers and all the other tangible goods.
There are many complicated aspects of financial capital, that help to understand the financial health of a company. All these include the capital needed for effective functioning of the company and lead to its successful operations at all times.