Different types of capital are as follows:
1. Working capital: Working capital-the difference between a company's assets and liabilities-measures a company's ability to produce cash to pay for its short term financial obligations, also known as liquidity.
Working capital = Current assets - Current liabilities
Positive working capital means the value of a company's current assets is more than its current liabilities Negative working capital, on the other hand, means that current liabilities outweigh current assets. For the company, this could lead to financial issues with creditors, growth, or production.
2. Debt capital: Debt capital is acquired by borrowing from financial institutions, banks, friends and family, credit cards, federal loan programs, and venture capital, or by issuing bonds. Just like an individual needs established credit history to borrow, so do businesses.
Debt capital has to be paid off on a regular basis (with interest) but unlike an individual's debt, it is seen as more of an essential part of building a business instead of a financial burden.
3. Equity capital: Equity capital is any capital raised through selling shares with a key difference being whether those shares are sold privately or publicly:
Private: Shares of stock in a company within a private group of investors.
Public: Shares of stock in a company that are listed on the stock exchange (think: IPO).
The money an investor pays for shares of stock in a company becomes equity capital for the business.
4. Trading capital: Trading capital applies exclusively to the financial industry where brokerage companies need enough capital to support their investment strategies. Trading capital supports the many daily trades that brokerage companies need to make to generate a profit and the large-scale trades made by the biggest brokerage firms. Sometimes it is granted to individual traders and sometimes to the firm as a whole.
