Role of Capital in Production

Capital refers to assets such as machinery, equipment, inventory and cash that are used to start and continuously operate a business.

Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are so called because they cannot easily be turned into cash.

Circulating capital includes raw materials, finished and semi-finished, goods, bank and cash balances. These assets can easily be converted into cash.

Tools and machinery are necessary for products to be fashioned from raw material e.g.  mineral mining,  oil  drilling and lumbering. These assets also increase productivity for example sewing with a machine as opposed to sewing by hand. Venture capital is needed for business start-up. The business owner will need equipment, funds for promotion etc. to start the business. Working capital is the cash available for the daily operation of the business. It is used to pay workers, utilities and purchase raw materials.

Previous | Next