The Six Forms of Capital Used by Business
Capitalism is not only about financial capital. Many people are not aware that companies deal with numerous types of capital. In addition to money, companies rely on machinery, energy, water, human labor, and the community.
If the water supply of a manufacturing company ran out, what would happen?
If a fashion retailer is accused of mistreating children or animal, what would to its stock price?
Business has been made by consultant Mark McElroy out of multi capitalism. This term may sound strange but it is not capitalism, socialism, and anarchism. It is just a new and precise definition of the economic system as well as a recipe for sustainable growth.
It is important for the finance professionals to seize the changing priorities in order to keep up with the quick changes.
Following are 6 types of capital used by the business enterprises:
Financial capital is considered to be essential in order to get the business a successful start. Financial capital is the capital that comes from the two sources- debt and equity. Debt capital refers to the funds that have been borrowed and have to be repaid at a particular date, basically with a certain amount of interest. On the other hand, the funds that have been generated by the sale of the stock, either common or preferred shares are known as equity capital. The equity capital doesn’t have to be repaid but the investors of the organization expect a certain rate of return out of the same.
Human capital is less of a noticeable concept, but, its contribution to the success of the company is not less important. The skills and abilities that the employees and workers of the company bring in functioning are known as the human capital. It is not easy to measure the human capital in monetary terms. There are many companies who believe that the well-being of their employees is very important as this will somehow be beneficial for the bottom-line. This will happen for sure as the workforce becomes very happy and efficient.
Intellectual property refers to skills, knowledge, business training or any proprietary information of the employee of the organization that contributes to the competitive advantage of the company. Intellectual capital can be defined as the assortment of all the informational resources that can be used by the company to yield profits, develop new products or improve the business somehow.
All the material resources that are used in the whole process of manufacturing are included in the manufacturing capital. All these resources have economic value in the organization and hence, could be considered as financial capital. The sustainable organizations seek to maximize the effectiveness and efficiency in using the manufacturing capital and practicing the policies that withstand the materials in terms of quality and quantity.
In financial terms, social capital involves the value of social relationships and networks that help in balancing the economic capital for the growth and expansion of the organization economically. Tangible and non-tangible assets, like the information, innovative ideas and financial support are included in social resources.
Natural capital refers to the stock of natural resources that are held back by the companies. The natural resources include water and oil. It is necessary to include the natural capital in the financial statements of the company and also the natural capital commodities must be certificated.