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:
“As a rule we develop a borrowed European idea forward, and ... Europe develops a borrowed American idea backwards.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)
“Had I made capital on my prettiness, I should have closed the doors of public employment to women for many a year, by the very means which now makes them weak, underpaid competitors in the great workshop of the world.”
—Jane Grey Swisshelm (1815–1884)