Question

Finance raised to operate a business is called?

Answer 1

Answer:

The revenue raised for a business to establish and run is named as capital. It is often referred to as seed money at times. Capital can be raised to carry out all the business operations with money.

1. Capital means something that confers benefit or value to its owner. Examples could be any financial assets of a business or an individual, intellectual property like patents, a factory and its machinery.
2. Something that increases a person or organisations ability to generate value can be considered as capital.
3. Raw materials used in manufacturing are not considered capital.
4. They are recorded as an asset on the balance sheet and expensed over the useful life of the asset through a process called depreciation.
5. In the balance sheet, Capital is shown as an asset, and expensed over the useful life of the asset through a process called depreciation.

Types of Capital

There are 3 types of capital:

• Working capital

• Equity capital

• Debt capital.

Debt Capital

• Borrowed funds that must be repaid at a later date is known as Debt capital.
• Debt capital to a company is provided by the creditors. Examples of creditors are suppliers, bondholders, banks.

Equity Capital

• Equity capital is a core funding of a business.

• Shareholders provide a company with equity capital.

• Equity capital is funds paid into a business by investors in exchange for common or preferred stock.

Working Capital

• Working capital is calculated by using the current ratio, which is current assets divided by current liabilities.

• It is better if the ratio is higher. A ratio above 1 means current assets exceed liabilities.