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:
“There was an old woman and she lived in a shoe,
She had so many children, she didn’t know what to do.
She crumm’d ‘em some porridge without any bread
And she borrowed a beetle, and she knocked ‘em all on the head.
Then out went the old woman to bespeak ‘em a coffin
And when she came back she found’ em all a-loffing.”
—Mother Goose (fl. 17th–18th century. There was an old woman who lived in a shoe (l. 1–6)
“Mr. Whistler always spelt art, and we believe still spells it, with a capital “I.””
—Oscar Wilde (1854–1900)