There are a lot of misconceptions about the term “capital” among the businesspersons who are not from finance background. This is one of the major reasons why they are not able to estimate the right quantum of capital required for their businesses. many businesspersons misconstrue it as the capital expense made in the beginning at the time of setting up a production facility. The word capital has a long-term connotation. Hence, many businesspersons treat capital as their equity capital & bank loans in the books of accounts ignoring the size of net working capital have any proportion to the capital block. This leads to a major confusion in interpretation of the capital that has been invested in the business. Additionally, the amount of capital in the business always changes. A prudent business person always must know the the existing invested capital and the future required capital.
So what is capital?
In general course of business, capital is the amount of money that cannot be withdrawn and always remains in the business to keep operating it.
This word should be used in “requirement” sense than wealth sense!