Kinds of Capital of a Company: Everything You Need to Know
Different kinds of capital of a company help a company to sustain itself and grow.3 min read
Different kinds of capital of a company help a company to sustain itself and grow. It not only positions a company to increase its value but also aids in its organizational strategy. A company can benefit from various kinds of capital as well as from proper reporting geared at communicating strategy to a wider range of shareholders. This type of integrated reporting aids in:
- Sustainability initiative
- Corporate reporting
Financial capital is one of the most common and well-known forms of capital in a business. Financial capital is vital for getting a business off the ground and will come from both:
Debt capital involves funds that are borrowed and to be paid at a later date typically with interest. Types of debt include:
- Bank loans
- Personal loans
- Overdraft agreements
- Credit card debt
Equitable capital is investment funds raised through the sale of stock to shareholders, who will put in an amount of investment in exchange for a portion of ownership in a company and typically a return.
Both forms of financial capital will play an important role in the economy allowing other forms of capital to be traded and owned.
Manufactured capital is a term that refers to both fixed assets and material goods that are necessary to the production process such as:
- Material inventory
- Distribution networks
- Products and services
- Goods sold to customers
Manufactured capital is an integral part of any company's success. To make the most of your assets, it is important to be able to accurately analyze the costs and returns on this type of capital.
There is often debate about the value that intellectual capital brings to a company. Intellectual capital includes such intangible assets as:
- Branded equity
The value of these assets can vary, but some property can be valued up to tens of billions of dollars. Many companies will use the power of this intellectual property to leverage assets via such avenues as:
- Licensing agreements
- Brand extensions
- Line extensions
- Joint ventures
An example of this was Google's acquisition of Motorola Mobility which occurred in 2012. This acquisition was primarily geared at gaining the Motorola's brand patent portfolio.
Not only does intellectual property help with strategies and idea, but it also helps to provide insight into future projects and company operations.
Human capital is another component that is vital to the success of any business. This concept is less tangible and includes items that are contributed by the employees, officers, and owners of a company such as:
- People's health
- Their knowledge
This type of capital is vital to promote productivity in a business. Some of the most powerful technology companies in the world focus on human capital for their success such as:
The employees of a company are often the most integrated as well as the most expensive asset that a company has. While it can be hard to quantify human capital many companies have come to realize that they can improve customer performance through such avenues as:
- Continuing education classes
- Professional development seminars
- Healthy-living programs and incentives
Also, many companies have found that if they invest in the well-being and happiness of their employees, it improves their bottom line by making them enjoy their job more, increase performance, and become more efficient. High employee turnover and the cost to retrain and on-board new employees can be expensive and disruptive, making employee retention important.
Another way to increase the value of human capital is by leveraging an employees intellectual capital. To make the most of this capital and improve company knowledge, you can:
- Cross train employees in different fields
- Improve employee certification and knowledge
- Create stable work conditions
Social and Relational Capital
Social capital refers to the institutions that allow you to maintain and continue to develop your company's human capital. Social capital includes such things as:
- Other businesses
- Trade unions
- Voluntary organizations
A company's social capital includes teams that work together and share their intellectual capital. This form of capital can be considered even more intangible than human capital as it focuses on relationships between people.
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