A:

The term "capital" can refer to a number of different concepts in the business world. While most people think of financial capital, or the money a company uses to fund operations, human capital and social capital are both important contributors to a company's overall financial health.

The following are different examples of types of capital:

1. Financial Capital

Financial capital is necessary in order to get a business off the ground. This type of capital comes from two sources: debt and equity. Debt capital refers to borrowed funds that must be repaid at a later date, usually with interest.

Common types of debt capital are:

Equity capital refers to funds generated by the sale of stock, either common or preferred shares. While these funds need not be repaid, investors expect a certain rate of return.

2. Human Capital

Human capital is a much less tangible concept, but its contribution to a company's success is no less important. Human capital refers to the skills and abilities a company's employees bring to the operation.

Though it's hard to quantify human capital in dollars, most companies know that employee performance can be greatly enhanced by continuing education classes, professional development seminars and healthy-living programs. Many businesses choose to invest in the happiness and well-being of their employees because this investment indirectly benefits the bottom line by cultivating a happier, more efficient workforce.

3. Social Capital

Social capital is an even more intangible asset, referring to the relationships people have to each other, and the desire they have to do things for and with others within their social networks. People tend to do things to help and encourage those in their same social network, creating a cycle of mutually beneficial reciprocity.

In business, a person with high social capital knows many influential people within his industry and may have more opportunities for advancement and development than someone whose social circle is small. People with high social capital may also have an easier time accomplishing things, both personally and professionally, because they can draw on the strengths and resources of others within their networks.

RELATED FAQS
  1. What is human capital and how is it used?

    Learn about the concept of human capital, how it is developed and why it is important for businesses to protect their human ... Read Answer >>
  2. How do managers measure human capital?

    Learn what human capital is, how managers measure it and how managers measure human capital's return on investment to gauge ... Read Answer >>
  3. Human capital vs. physical capital: What is the difference?

    Learn the difference between physical capital and human capital. How to find the value of each type of capital in a company's ... Read Answer >>
  4. How do cost of debt capital and cost of equity differ?

    In corporate finance, capital – the money a business uses to fund operations – comes from two sources: debt and equity. Read Answer >>
  5. How does a company's capitalization structure affect its profitability?

    Learn about capitalization structure and how the combination of debt and equity a company uses to fund operations can affect ... Read Answer >>
  6. What is the difference between capital gains and investment income?

    Learn about the difference between capital gains and other types of investment income, such as dividends paid on stock or ... Read Answer >>
Related Articles
  1. Investing

    How Human Capital Can Affect You Financial

    Understand how human capital assists in capturing the entirety of an investor’s unique risks, returns and constraints is your best asset as you get older.
  2. Managing Wealth

    Issued share capital versus subscribed share capital

    Learn the difference between issued share capital versus subscribed share capital. Get information about various types of capital.
  3. Financial Advisor

    Don't Ignore the Importance of Human Capital

    Are you ignoring the value of human capital in your financial planning? This oft-overlooked asset should be an important component of your financial plan.
  4. Small Business

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  5. Investing

    How Social Venture Capital Is Changing the World

    Learn what social venture capital is and the ways in which it differs from traditional venture capital. Identify two leading social venture capital firms.
  6. Investing

    Ares Capital (ARCC) to Buy Rival for $3.4 bln (ARCC, ACAS)

    Private equity firm Ares Capital inks deal to acquire smaller rival American Capital for $3.4 bln in stock and cash.
  7. Investing

    When Socially Responsible Investing Hurts

    Socially responsible investing can make you feel good but it may not boost your returns.
  8. Investing

    Understanding Social Impact Bonds

    Social impact bonds are powerful investment vehicles for the solving of social issues in a sustainable fashion.
  9. Tech

    Understanding Facebook's Capital Structure (FB)

    Facebook's strong revenue and earnings have allowed solid expansion of the company's equity capitalization, resulting in little debt in its capital structure.
  10. Retirement

    8 Types of Americans Who Won't Get Social Security

    Most Americans eventually get Social Security retirement benefits. Those who don't need a solid Plan B.
RELATED TERMS
  1. Capital Funding

    Capital funding is the money that lenders and equity holders ...
  2. Capital Base

    The term capital base has multiple applications in finance. In ...
  3. Corporate Capital

    Corporate capital refers to the assets a business has available ...
  4. Capital Flows

    Capital flows entail the path that money travels through corporations, ...
  5. Capital Asset

    A capital asset is a type of asset with a useful life longer ...
  6. Knowledge Capital

    Knowledge capital is an intangible value of an organization made ...
Trading Center