Wednesday, August 29, 2012

Difference between financial capital and physical capital


From
http://www.ehow.com/info_12061195_differences-between-physical-financial-capital.html

At its core, a business can be defined by assets. One way to describe assets is to break them down into categories. Though a hundred economists might categorize assets slightly differently when it comes to minutia and detail, two broad breakdowns agreed on by most people would be physical and financial capital. One way to think about it that physical capital is a tangible asset that can be touched in a real sense, while financial capital refers to the legal ownership of assets such as physical capital.

Physical Capital
A vision of factories and equipment often comes to mind when the term "physical capital" is invoked, and that is not inaccurate, but gaining a complete understanding of the idea requires a bit more detail. That description would also include the inventory sitting in stockrooms or warehouses, equipment from the tiniest screwdriver to the fleet of 18-wheel trucks, and fixed structures like office buildings, shopping malls, or factories. Physical capital is the tangible items used for actual production of the good or service provided by a company.

Financial Capital
Financial capital, on the other hand, is the legal ownership of all physical capital, as well as the monetary value of any asset that could be liquidated for cash. In fact, cash on hand is a form of financial capital, but so is stock shares, land titles, and other forms of property ownership. Financial capital might exist in large part as electronic entries in a computer database somewhere that denote how much money exists in a company's checking or savings accounts.