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Financial capital is a term that refers to assets that are considered to be liquid in nature. That is, a capital asset of this type can be used to make purchases of various goods and services or to acquire other types of assets. Business owners make use of this capital to secure the resources needed to operate a business and supply products and services to their customers.
It is important to note that financial capital only refers to tangible assets that can be used as money. This means that assets such as buildings and equipment do not qualify. However assets such as currency in hand, the balances of existing bank accounts, and negotiable instruments such as stocks or bonds do meet the criteria.
The need for financial capital is apparent to any business owner. Entrepreneurs need this type of business capital to purchase raw materials and equipment to launch a new business venture. Established businesses require capital to continue existing operations or to expand the business in some manner. Liquid assets make it possible to acquire other businesses or purchase materials for future use in the manufacturing process.
Investors also require access to liquid capital to take advantage of investment opportunities without having to sell off a capital asset in order to do so. In this application, it allows the investor to enhance the value of the investment portfolio and thus create a higher degree of financial stability. Many investors choose to maintain a certain amount of financial capital on hand so that it is possible to engage in trading activity that is likely to yield a significant return within a short period of time, without the need to buy on margin.
Whether to launch a new business or to improve business operations within an established company, financial capital is key to achieving success with the business venture. This is as true for small businesses as for international conglomerates. By keeping a certain amount on hand at all times, it is easy to quickly take advantage of opportunities that are only available for a limited time and hopefully use those opportunities to generate even more capital.