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:
“A great proportion of architectural ornaments are literally hollow, and a September gale would strip them off, like borrowed plumes, without injury to the substantials.... What if an equal ado were made about the ornaments of style in literature, and the architects of our bibles spent as much time about their cornices as the architects of our churches do? So are made the belles-lettres and the beaux-arts and their professors.”
—Henry David Thoreau (1817–1862)
“The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state.”
—John Kenneth Galbraith (b. 1908)