Capital refers to a business’s financial or investment capacity to deploy resources necessary for operations, growth, or expansion.
For businesses to produce goods or deliver services, they need resources. And resources come at a cost. Businesses, therefore, need the financial means or goodwill to acquire such mission-critical resources. This financial means is known as capital.
Capital uses as factors of production
Land
In the production of goods, the acquisition of land or buildings/facilities is one of the first capital considerations. Such operations require space and the space must be sited on the land it occupies. And land comes at considerable expense.
e.g. a dairy farm needs pasture to allow cows to graze
Equipment
Transforming raw materials into refined products ready for the market can involve equipment. Such equipment can be expensive, often due to the specialised engineering and expertise used to make the machinery.
e.g. airlines need aeroplanes to transport customers
Supplies
Industrial production processes require raw materials or inputs to operate. And inputs carry cost. To begin trading in such cases, inputs must be acquired, which is often costly and so capital is required.
e.g. parts on a car assembly
Labour
Labour exists in every business. However, what that labour looks like can differ widely. Having available labour resources involves attracting, remunerating and retaining talent. To do this requires: recruitment, employment, development and training, which all cost capital.
e.g. a team of software developers for a SaaS company