Financial capital (what is it, characteristics and elements)

Category: Finance

The financial capital is the total amount of assets a company has, first subtracting liabilities to assets, and the resulting figure is the heritage obtained. Keep in mind that financial capital is the amount of money invested in various financial entities and not in production processes.

The money previously invested in financial institutions would be a fund of assets, where the money is in cash in a state of savings so that the company has a stable support of assets, which over time gives benefits.

History of financial capital

At the beginning of the 20th century, financial capital emerged from the need of the industrial sector. At that time the industries were at their peak, producing large amounts of goods in cash. Financial institutions began to concentrate, providing their services to companies and industries.

With the growing increase in company assets, financial institutions began to merge with them, saving all their money, thus creating a net capital of all their assets. With this union, the famous business relationships began, which over time have been of great help for the growth and sustainability of all companies, since the financial institutions became a kind of support for them, since they also They help manage your financial sector.

What are financial institutions?

Financial institutions are a for-profit entity. All of them provide financial services to companies. Its main services are the loan of money and cash deposits in order to create a savings fund called financial capital. Over the years, these institutions have made progress with the provision of services and the support they provide to all companies, especially those that are growing and those that have great economic support.

One of the most appreciated services is the guidance it provides to business partners, since financial institutions influence the way of companies, economic performance and profitability. Financial institutions have the money granted by the company to create a savings account, this provides people with a kind of mattress under any circumstances, in addition to the company has a secure money.

Characteristics of financial capital

The main characteristics of financial capital are the following:

  • Financial capital has been cash resources, that is, money that is available. In general, these are resources that people or companies save and then obtain benefits from them, usually seeking to inflate their capital or generate interest according to the amount saved in the account.
  • Financial capital is linked to the time factor, since all movements made with it depend on it, for example, cash deposits, which have been part of financial capital, are made effective in the account deposited after a few days. With the passage of time, financial capital is generating greater income with its own interests as a result of its savings account. When an investment is made with financial capital, it can generate inflation, making it more valuable over time.
  • In itself, financial capital seeks to generate profits and increase profits to the company, through different bank movements and currency transactions with the money that makes up all the capital.

The financial capital are economic resources that the company has to carry out different activities. The different companies with large financial capital send their money directly to the stock exchange, to convert that capital into shares and thus generate greater profit.

Financial capital has made large financial institutions absorb or merge with smaller ones, this originated due to the growth and sustainability of these companies. Many companies prefer to invest their financial capital in small institutions, so as not to have to pay high taxes and have to declare where that capital comes from.

Shareholders are interested in the fact that there is some inflation, since this generates higher interests, but in turn they should be careful not to alter the net capital.

Elements of financial capital

The financial capital is made up of:

  • Capital not issued but authorized: it is the part of the capital that has not been added to the different documents that declare the capital. It is usually the capital that results from the difference of the different partners.
  • Exhibited capital: it is the amount of money that the different partners of the company have contributed to the net capital.
  • Capital not shown, but already subscribed: it is the capital that is already authorized and subscribed, but has not yet been displayed.
  • Capital obtained from the profits: this is the figure that was earned through the various actions carried out by the partner (s).
  • Capital contributions: this has been a particular contribution of the partners, in order to increase the capital of the company. This contribution has no refund.
  • updated capital: this is when the capital figures are updated after certain changes have occurred within it.
  • Retention of profits: those earnings of shareholders, but not distributed, but were sent directly to the capital of the company.

All these elements integrate financial capital, which will then be sent to an account in a financial institution. Financial capital should not be confused with the capital produced by the company, since the latter is destined for production processes, for the proper functioning of the company and for generating jobs.

Many international companies come together to jointly invest their financial capital, in order to generate profitability in different investments made. Financial capital investments may prove unstable, since, if the business has no sustainability, they immediately disappear so as not to generate losses in its capital.

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