DEFINITION of Capital Base
The term capital base has multiple applications in finance. In each case it is generally used to refer to some type of base level of funding.
1. For the purposes of a company going public or company that is already publicly traded, base capital can refer to the capital acquired during an IPO, or the additional offerings of a company, plus any retained earnings.
2. When referring to money an investor uses to purchase securities, capital base refers to an initial investment plus subsequent investments made by an investor into their portfolio. The term is essentially synonymous with cost basis.
3. When dealing with a bank, capital base can be used synonymously with the term bank capital. Bank capital is the value that results when a bank's liabilities are subtracted from its assets. There are regulatory requirements regarding how much bank capital a bank must maintain.
BREAKING DOWN Capital Base
1. This is essentially the money contributed by the shareholders who first purchased shares in the company plus retained earnings.
2. Capital base is important because it provides a benchmark when measuring returns. Without it, investors and companies would be unaware of how their investments have performed because they would have no starting point to use in their measurements.
3. A bank will keep an eye on its capital base, or bank capital, since it is a regulatory requirement to maintain certain levels of funding. When a bank starts to become inadequately funded, it can raise capital by selling bonds or taking other steps to reduce its liabilities or increase its assets.