Own and Borrowed Capital
Capital contributed by the owner or entrepreneur of a business, and obtained, for example, by means of savings or inheritance, is known as own capital or equity, whereas that which is granted by another person or institution is called borrowed capital, and this must usually be paid back with interest. The ratio between debt and equity is named leverage. It has to be optimized as a high leverage can bring a higher profit but create solvency risk.
Read more about this topic: Financial Capital
Famous quotes containing the words borrowed and/or capital:
“The bugle-call to arms again sounded in my war-trained ear, the bayonets gleamed, the sabres clashed, and the Prussian helmets and the eagles of France stood face to face on the borders of the Rhine.... I remembered our own armies, my own war-stricken country and its dead, its widows and orphans, and it nerved me to action for which the physical strength had long ceased to exist, and on the borrowed force of love and memory, I strove with might and main.”
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