Financial capital is what?

In the economy, capital is the property of an individual or a legal entity, expressed in terms of money (sometimes in a commodity). There are several options for using this property:

• For private purposes.
• For preservation (purchase of antique goods or luxury objects).
• To multiply.

Development of the term

Financial (monetary) capital is a resource of economic life, which consists of financial (monetary documents and cash and non-cash funds) and real capital (resources invested in all kinds of economic activities). Economists treat the concept of "capital" in different ways.

Economists treat the concept of "capital" in different ways. Many of them believe that this concept is much broader than just "money." For example, Smith gives a characterization of capital as a certain stock of money supply and things. Ricardo goes further. He interprets capital as a material reserve of means for production. At the same time, he believes that it is extremely difficult to increase the price of capital. Economist Fischer interprets capital as the creation of services that form profit.

As a result, the financial structure of capital is a certain amount of benefits, expressed by mental, material and financial opportunities, which are used to increase the number of goods produced.

Capital in the theory of accounting, all means invested in the assets of an organization or firm are recognized.

In modern theory of economic terms, financial capital is divided into real, expressed in highly intellectual form and material, and monetary (financial), expressed in cash and non-cash funds and securities.

Modern economists insist on another kind of capital - the human. It is formed due to the contribution to health and education of the workers that make up the labor resources of the enterprise.

Basic concept

Financial capital is cash and non-cash funds that businessmen invest in business. Production has a demand not only for material capital. First of all, cash and non-cash funds temporarily not engaged in production go into business. They are necessary for obtaining capital goods.

Households or organizations, not fully using the income received for current needs, save part of the funds. They go through financial markets to other farms or organizations that use them to purchase capital goods. Thus, there is an investment. The firm that applied the capital of the firm that retained it pays a loan interest. This percentage is the price of financial capital.

In economics, financial markets are considered to have perfect competition. This means that neither savers nor firms that have received an investment have the ability to influence the interest rate by changing the amount of savings invested or changing the demand for them. Thus, the isostatic market interest rate is formed in the course of fair competition of both depositors and savers.

The demand for financial capital is the dependence on the interest payment for the investment. The fee is lower, the greater the amount of investment. The number of proposals from firms-savers also depends on the interest rate: the higher it is, the higher the amount of savings.

Content of financial capital

Financial capital is recognized as cash documents and cash and non-cash funds. At the same time, valuable documents as a category are fully recognized as financial capital. Cash and non-cash funds can not be fully considered as such. Financial capital is not included in the money supply held by the citizens of the country, at the cash desks of various enterprises and firms, as well as the key part of funds on settlement accounts with banks (as it goes to conduct sales transactions). Only part of these funds, pledged in installments or in advance, can fall under the category of "financial capital of organizations." That part of the monetary resources of organizations that are applied as pension or insurance savings can also be a share of financial capital.

The diagram shows an approximate scheme of financial capital.

Economic background

The formation of the economic category "financial capital" was provoked by the need for economic turnover. Considering the model of the circuit in the economy, one can see that organizations spend the share of their assets on settlement accounts in banks and in cash for costs of payment of economic resources and current expenses, and some in cash documents and deposits with banks for future spending. Households also accumulate savings and make various payments, including taxes. For these purposes, they also open accounts in banks, on deposits and have securities. The state, as a representative of the economic life, conducts payments for services, subsidies and goods, executes state money transfers and prints its securities. Funds, insurance and pension, participating in the economic cycle, reduce emerging risks in the course of social and economic activities, while keeping some of their active assets temporarily unoccupied.

Modern realities

In today's economic cycle, financial capital is real capital. This is due to the fact that securities and money supply are transferred to tangible working capital and fixed assets.

Here it is necessary to take into account that financial capital does not flow into the real one. For example, some households in our country keep some of their active assets in foreign currency at home. Turnover in the economic sector of the share of real capital translates again into financial capital. This can happen, for example, due to a decrease in fixed capital due to deductions for depreciation, which fall on accounts in banks. In addition, financial capital is supplemented by constantly financial injections (the same purchase of securities). From this it follows that the financial capital works in parallel with the real capital.

Form of financial resources

As is clear from the above, financial capital is the share of financial resources of an organization that is in circulation and brings a certain income. That is, they are advanced and (or) invested resources, aimed at making a profit. The financial capital of an enterprise is the basis on which the organization is created and developed. It is capital that characterizes the total value of enterprise funds in the non-material and material form and investments in assets.

In the process of work, capital serves as a guarantor of the interests of the organization and the state. Therefore, it is the main object of financial management of the organization, and managers of the financial department are required to monitor the high efficiency of its use.

Signs of financial capital

Financial resources and capital are interrelated. Proceeding from this, there are several signs of the financial capital of the organization.

Affiliation

Here, capital differs in its own and borrowed. By its own capital, it is possible to judge the total value of the enterprise's funds (which are subject to the ownership rights of the enterprise). It includes reserve, additional, statutory capital and retained earnings.

Statutory, or stock capital - is the minimum amount of own property, which is a guarantee for creditors. Its size is stipulated in the charter of the organization (the minimum is set at the level of federal legislation).

The additional capital consists of the amount of revaluation of the tangible assets of the enterprise, the useful life of which is more than one year. Also in this capital are gratuitous values received by the firm, amounts earned in excess of the minimum value of placed securities and other monetary amounts falling under this category.

Reserve capital is the accumulation of deductions from the received profits for an unforeseen event: possible losses, redemption of shares, etc. The amount of deductions is regulated by the charter.

Financial capital is the profit of an enterprise, which is practically its most basic part.

Loan capital - cash or other valuables, which are attracted on a return basis to improve the organization's activities.

Investing

On the basis of investment distinguish between working capital and fixed capital.

Part of the capital invested in fixed assets and non-current assets, and is fixed capital. Financial capital includes the negotiable capital.

All tangible and intangible assets included in the financial capital of the organization are in a constant circulation. Proceeding from this, it is possible to divide it into the form of location in the next round of turnover. This is a monetary form, productive and commodity.

The money form is an investment. Investments can be both in off-and-off assets. In any case, they become productive.

At the stage of production, capital passes into the form of goods (work, services).

The third, final stage - commodity capital turns into money through the sale of goods (services or works).

In parallel with these movements of capital, its value changes.

Management of financial capital

This function usually lies with the enterprise management department and means managing its own financial flows. To do this, the organization should be formed long- term and short-term financial policy. The main direction of it should be the attraction and proper distribution of financial flows.

The management of financial capital is intended to solve several basic tasks.

1. Determination of rationally necessary size of equity capital.
2. Involvement (if necessary) of undistributed part of profit or issue of shares to increase the amount of equity.
3. Formulation and execution of the dividend policy and the structure of the issue of shares.

The development of financial policy takes place in several stages.