TYPES OF CAPITAL: On the basis if investment On the basis of ownership On the basis of time period

1. WELCOME

2. CH:4 MANAGEMENT OF
CAPITAL
TOPIC: TYPES OF CAPITAL
PRESENTED BY: BHAKTI CHANCHAL
CLASS: TY B.COM (A)

4. INTRODUCTION
• Capital is the life blood and nerve Centre
of any Business. Just as circulation of
blood is essential in the Human Body for
maintaining life , Capital is very important
for smooth conduct of business.
• It is the most important aspect without
which no business idea can be
conceived.

5. MEANING OF CAPITAL
• In accounting, CAPITAL means anything brought by
the owner into the business in cash or in-kind(any
item)
• Capital can also represent the accumulated wealth
of a business, represented by its assets less
liabilities.
• Capital can also mean stock or ownership in a
company . In general, capital is accumulated assets
or ownership.

7. TYPES OF CAPITAL
1. ON THE BASIS OF TYPE OF INVESTMENT
OR PURPOSE :
a)Fixed capital
b)Working capital
2. ON THE BASIS OF OWNERSHIP :
a)Owned capital
b)Borrowed capital
3. ON THE BASIS OF TIME PERIOD :
a)Short term capital
b)Long term capital

8. TYPE :1 ON THE BASIS OF TYPE OF
INVESTMENT OR PURPOSE
• Every business requires funds for 2 main
reasons i.e. , for its establishment and
secondly to carry out day - to -day
operations. So, on the basis of types of
investment capital can be classified into:
• a) FIXED CAPITAL
b) WORKING CAPITAL

9. FIXED CAPITAL
• Fixed Capital means that capital which is required for
investment in production facility through purchase of f fixed
assets such as plant ,machinery, land and building ,furniture,
etc. this assets are needed to carry out regular operations of
production and without them business activities cannot be
pursued .Thus , Investment in fixed asset is the first initial step
in establishing a company.
• And other investment is made in non current or intangible asset
also called as fixed assets . non-current or intangible asset
includes Goodwill, patent ,copyright, etc. Although they do not
create any production facilities yet they are essential for conduct
of the business.

11. IMPORTANCE OF FIXED CAPITAL
• ESTABLISHMENT OF COMPANY
• PROMOTION OF COMPANY
• MODERNISATION OF COMPANY
• REPLACEMENT OF AN OBSOLETE ASSETS
• EXPANSION AND DIVERSIFATION
• AUTOMATION OF COMPANY

12. FACTORS AFFECTING FIXED CAPITAL
REQUIREMENT
• NATURE OF BUSINESS
• SCALE OF OPERATIONS
• TECHNIQUE OF PRODUCTION
• TECHNOLOGY UP-GRADATION
• GROWTH PROSPECTS
• DIVERSIFICATION

13. WORKING CAPITAL
• Working Capital refer to that part of company capital which is required
for financing short-term or current asset such as cash ,marketable
security, bill receivable ,inventories , etc
• It is the amount needed for day-to-day conduct of the business like
purchase of raw material ,payment of wages , salaries , rent , etc. It can
simply be said that the fund kept managing daily operations is known
as Working Capital.
• Working capital is generally used in two ways gross working capital
and net working capital .
• gross working capital represent the amount invested in current assets
such as cash , inventories, bills receivables , etc and net working
capital is difference between current asset and current liabilities.

14. IMPORTANCE OF WORKING CAPITAL
• CONTINUATION IN BUSINESS OPERATIONS
• SECURITY AND CONFIDENCE
• CASH DISCOUNTS
• EFFICIENCY IN PRODUCTION
• GOODWILL
• PROPER UTILISATION OF FIXED CAPITAL

15. FACTORS AFFECTING WORKING
CAPITAL
• NATURE OF BUSINESS
• SIZE OF BUSINESS
• CHANGES IN TECHNOLOGY
• LENGTH OF OPERATING CYCLE
• RATE OF GROWTH
• WORKING CAPITAL TURNOVER

16. TYPE : 2
ON THE BASIS OF OWNERSHIP
There are 2 types of capital on basis of ownership :
1. OWNED CAPITAL :
• It refers to the capital which is provided by the owners of an
organization .
• In case of sole proprietorship and partnership firm , the
proprietor or partners themselves provide fund , whereas in
case of joint stock company, funds are raised through issue of
shares and reinvestment of earning this is known as owned
capital.
• Owned capital includes external sources like equity shares,
preference share and internal sources like retained earning ,
surplus , reserves , etc.

17. 2. BORROWED CAPITAL :
• Borrowed Capital is also called as Debt Capital or loan capital or
Creditorship Securities. These are funds borrowed from either
individuals or institutions.
• Borrowed Fund consist of different types of Debenture ,Bonds,
Bank Borrowings, Public Deposits , etc.
• Borrowed Capital is used to increase profitability of the company
and this use is called leverage and the lenders of Borrowed
capital are called creditors of the company.
ON THE BASIS OF OWNERSHIP

18. There are 2 types of capital on the basis of time period :
1. LONG TERM CAPITAL:
• long term capital is the capital which is used to meet the
requirement of funds for a longer period of time that is a period
exceeding 3 to 5 years.
• long term capital includes various sources like equity share,
preference share, debenture, working capital term loans , etc.
• long term capital is used to purchase fix assets , part finance of
permanent working capital, replacement of old machine,
expansion of business , etc .
TYPE : 3
ON THE BASIS OF TIME PERIOD

19. 2. SHORT TERM CAPITAL:
• short term capital is one which series to meet the short-term
financial requirements of the company.
• short term capital generally for short period not exceeding the
accounting year that is, one year.
• sources of short term capital and include bank loan, trade credit
,installment credit, advances, accounts receivable, commercial
banks , etc.
• The requirement of short term capital may vary and it may be a
few days, week, or month. Day to Day functioning of business
transaction are done by finance from short term sources.
ON THE BASIS OF TIME PERIOD

20. THANK
YOU