What are Capital Resources? Definition, Types, Example

Definition

The normal course of business involves a number of different operations that are required to arrive at the final result. In this regard, it is imperative to consider the fact that the main course of operations in this regard is mainly three-tier: INPUT, PROCESSING, and OUTPUT.

The part where the company ‘processes’ the inputs is termed as value addition and this forms the very basis of the existence of the company in the first place. Processing is mostly undertaken using capital because this tends to be a discriminating factor between inputs and outputs.

Therefore, capital resources can simply be defined as manmade resources that are arranged by the company in order to operate.

Regardless of the fact that there can be numerous different types of capital that are involved within the company, yet it can be seen that these resources are combined in order to create a synergized outcome.

Without effective capital resource management, favorable outcomes might not be possible. Capital resources can be tangible, or intangible. They are recorded on the balance sheet of the company under Non-Current Assets.

This is because they have a useful life of more than 1 year, and hence, they are treated as long-term resources that are likely to render profits for the company in the longer run.

What does it really mean from an economic perspective?

As mentioned earlier, it can be seen that capital resources are termed highly pivotal from the standpoint of the organization.

The economic implications of capital resources are deeply embedded on the grounds of optimizing the outcomes from these assets, so that maximum benefits can be extrapolated from these resources that will roughly translate to profit for the company.

See also  How Does a General Obligation Bond Work? (Detail Explanation)

From an economic perspective, it can be seen that capital resources are in investment by the owners (or investors) of the company in order to facilitate operations or production that can render the required benefits for them.

In this regard, it is also important to consider the fact that these capital resources are considered to be the stepping stone, based on which subsequent production is carried out within the company.

All the capital-oriented decisions are undertaken based on the viability of the investment that is required, and the returns that can be extrapolated as a result of this investment.

The economic viability is gauged as such, depending on the inherent risk and return that is undertaken in this regard.

Types of Capital Resources

There are numerous different types of Capital Resources that are part and parcel of the company. The main types of capital resources are as follows:

  • Financial Capital: Financial Capital is mainly required to make sure that the company operates and functions as per the requirements that are set by the company. Running finance to pay for day-to-day operational expenses can be an example. In the same manner, finance required to purchase property, or machinery is also referred to as financial capital.
  • Human Capital: Human Capital is the human resources that are important to make use of the machinery, and other non-human capital resources. Without human capital resources, it is unlikely for companies to do well.
  • Man-Made Capital: Man-made capital includes machinery and other equipment that is necessary to streamline the production process within the company.
See also  What is an irredeemable debt? Definition, Explanation, Examples, And More

Example of Capital Resources

The use, and procurement of capital resources for a normal business can be encapsulated using the example below.

NewCo. established itself on 1st January 2018, as a clothing manufacturer. In this regard, they identified, they needed to have a stitching unit, in addition to a couple of other machinery that was required for the production of clothing apparel.

Furthermore, they needed to get designers on board, who could undertake the responsibility of ensuring that the designs of the apparel were unique so that they could be sold.

Furthermore, they estimated that they would need a property where they could easily manufacture the required inventory, and store the raw material.

In the same manner, they also need personnel at the managerial level, who would make sure that all these tasks are implemented.

In order to finance all this, they plan on bringing investors who would pay for all these capital resources at a return based on profits generated.

In the example above, it can be seen that there are various different types of capital that is involved.

There is financial capital involved which is the running finance for the company. They also have machinery, and other capital equipment, which is required to streamline the production process.

Furthermore, human capital is perhaps the most rudimentary part of this capital-generating process, because it is the human capital that is eventually going to make sure that machinery and other relevant Non-Current assets are operated to generate positive returns for the company.

Scroll to Top