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.

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 bank loans, personal loans, overdraft agreements and credit card debt. 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.

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.

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 does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  3. 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 >>
  4. What is the difference between financial capital and economic capital?

    Read about the differences between types of financial capital, which companies use to raise money, and economic capital models ... Read Answer >>
  5. How do firms improve their employees' human capital?

    Learn what human capital is, how a firm can benefit from improving human capital and some ways a firm can improve its employees' ... Read Answer >>
  6. How do interest rates influence a corporation's capital structure?

    Learn about how changing interest rates can affect a corporation's capital structure because of their impact on the cost ... Read Answer >>
Related Articles
  1. Investing

    Human Capital: The Most Overlooked Asset Class

    The skills and knowledge that allow you to make money are your best asset. Remember to invest in yourself!
  2. Small Business

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
  3. Financial Advisor

    Human Capital, An Important Asset For Portfolio Diversification

    An investor’s total wealth consists of two parts – financial capital and human capital. The latter should not be overlooked in investment strategies and portfolio management.
  4. Small Business

    What's Human Capital?

    Human capital is a company asset, but it’s not listed on the balance sheet. Human capital is all of the creative skills and knowledge embodied in the employees of a company -- skills that bring ...
  5. Small Business

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  6. Managing Wealth

    Issued Share Capital vs. Subscribed Share Capital

    Subscribed share capital is very different from issued share capital, which is the actual issued stock.
  7. Small Business

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  8. Investing

    Your Human Capital Might Be Your Greatest Asset

    When allocating your assets, don't forget one of your most valuable assets - human capital.
  9. Investing

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  10. Personal Finance

    The Seven-Figure Asset You’re Probably Ignoring

    What is human capital and how should it factor into your investment decisions?
RELATED TERMS
  1. Social Capital

    An economic idea that refers to the connections between individuals ...
  2. Capital Investment

    Funds invested in a firm or enterprise for the purposes of furthering ...
  3. Capital

    1) Financial assets or the financial value of assets, such as ...
  4. Capital Funding

    Capital funding is the money that lenders and equity holders ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. Capital Structure

    A mix of a company's long-term debt, specific short-term debt, ...
Hot Definitions
  1. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  2. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  3. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  4. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  5. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
  6. Dilution

    A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur ...
Trading Center