Capital also includes the equipment that a business uses. Image credit MediaWiki

Capital also includes the equipment that a business uses. Image credit MediaWiki

ZIMSEC O Level Business Studies Notes: The nature,importance and uses of capital

  • The word capital has a lot of meanings
  • In business it is used to refer to either:
  • Money/Assets that are used to start a business
  • It is also used to mean the factories, machinery and equipment (often known as Property, Plant and Equipment) owned by a business and used in production.
  • It also includes working capital
  • Capital is therefore not just money, it also includes assets that are actively used in a productive capacity by the business

Importance and uses of capital

  • Capital has many uses in a business
  • It is used to:
  • Start up the business, without capital there is no business to talk about
  • Acquire new assets to be used in the business
  • Expand the business by establishing it into new locations
  • Purchasing inventory (otherwise known as stock) for sale by the business
  • Hiring new staff
  • Training new staff
  • To pay wages and salaries
  • Purchasing new equipment so that the business can gain and maintain its competitive edge
  • Pay its taxes and meet its other fiduciary duties
  • Conduct Research and Development
  • Develop new products
  • Maintain an adequate level of working capital
  • Update and repair its current assets and equipment
  • Pay dividends and interest on current equity and debt holders
  • There are many uses of capital and these are just a few of them.
  • NB A business cannot exist without capital.
  • A business that runs out of capital or fails to raise enough capital will eventually face forced liquidation

To access more topics go to the O Level Business Notes page.

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