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FKD 101

FKD 101: What Is Capital?

When you hear the word “capital” is your first thought Samuel L. Jackson asking people, “What’s in your wallet?” Don’t worry, you’re not alone.

Capital doesn’t mean your Capital One credit card. Capital is your financial resources.

Capital ain’t cash

It’s important to note that capital can represent a lot of different things. Broadly speaking, it can be boiled down to the financial and physical assets ready to be used. The more capital you have, generally, the better off you are.

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Repeat after me: Capital is not the same thing as cash. Cash is what we use to buy things (namely, goods and services), whereas capital is the investment that keeps on giving. Capital can stick it out for the long haul and, if invested properly, can create even more capital.

Work your assets

Channeling our inner Rihanna for a second, let’s talk about what assets are and how they “work” for us.

A financial asset is anything that has derives value from what it represents. Think: stocks, bonds, bank accounts and CDs (the financial kind). Cash can also be grouped into this category, however it’s important to note that capital and cash are not mutually exclusive. Basically, financial assets encompass any monetary holding that can be used to purchase physical assets.

On the other hand, physical assets are all the tangible stuff owned by a person or company. For a person, your house or car qualify as assets. Meanwhile company assets are typically things used in the production of the good or service offered: trucks, warehouses, machinery and land are examples. A good rule of thumb is if it can be rented or sold during a default, then it’s a physical asset.

Keep it class(ical economics)

Back in the day of classical economics, there was a common belief that there were three factors that were needed for production: land, labor and – you guessed it! – capital. With these three things – the factors of production – you could make goods and services to be consumed by others, which helps create more value and capital.

Invest yo self

Following the advice of our old classical economists, in order to get the three factors of production you need some initial capital to start out with. You can’t exactly make a company without putting in any cash first.

This then begs the question: How do you get that startup cash?

Well, if you don’t have the stacks you need to start out, you can always have people or banks invest in your company to help you get off the ground. Once you start making a profit, you can pay back your loans and keep making the moolah. Or you could take an investment later on and use it as a chance to accumulate even more capital.

If your company becomes wildly successful, then you, as well as your investors, make a profit as well. When business is booming, so are investments. This capital investment strategy is super common in our financial sector; so popular that even Ron Swanson was convinced to invest his money in a start-up. Way to go, financial sector!

Thanks to property rights, you also have the jurisdiction to do whatever the heck you want with your capital. You can keep it or sell it, transfer it or invest it.

Here’s hoping your start-up capital is able to fund your killer product idea. Who knows, you might even become a businessman with endless ideas and swagger like Tom Haverford.

 

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