(c) Explain what is meant by the term: 1. Capital owned
Answer (1)
In business, the term 'capital owned' refers to the financial assets that are personally provided by the business owner's investment in the company. This capital is the money or assets the owners invest themselves, and it is sometimes called "owner's equity" or "equity capital."
Key Points About Capital Owned:
Definition : It is the portion of the total capital of the business that is contributed by the owners. This includes any initial investment made by the owners as well as any profits that are retained for further investment in the business.
Components : Capital owned usually includes:
Owner's Initial Investment : The money or assets the owner puts into the business at the start.
Retained Earnings : Profits that are not distributed as dividends but are reinvested into the business.
Calculation : It can often be found on a company's balance sheet under the equity section. The formula can be seen as: Capital Owned = Total Assets − Total Liabilities
Importance : Capital owned is crucial because it represents the fundamental stake that the owners have in the company. It shows how much the owners have invested into the business, providing a financial cushion and reflecting the business's ability to sustain operations and grow.
Risk and Return : The higher the capital owned, the greater the control owners usually have over the business, but it also indicates that they bear a larger portion of the risk if the business underperforms.
In summary, capital owned is an essential part of a business's financial foundation, reflecting the investment and ongoing contributions by the business owners.
