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:
“Thought can but share
Belief—and the tormented soul,
Changing confession to despair,
Must wear a borrowed robe.”
—Austin Clarke (1896–1974)
“Many of us do not believe in capital punishment, because thus society takes from a man what society cannot give.”
—Katharine Fullerton Gerould (1879–1944)