What’s a capital increase?

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A capital increase is an increase in the capital of a business or company. Capital, or financial capital as it is technically called, is money invested in a business to enable it to make its goods or products, provide its services, or do whatever is necessary to keep the business operational and make a profit. This capital can be provided by investors, lenders, and/or the business owners themselves.

Most people have the idea that capital is the finances needed to start or build a business from scratch, but this widespread notion is not entirely correct. Another type of capital is what is called real capital or economic capital. This refers to physical things purchased using financial capital that is used in the day-to-day operations of the business. Some examples of real capital are machinery, equipment, tools, vehicles, and buildings.

A capital increase can be an increase in financial or real capital, or both. More often, it is an increase in the finances or monetary wealth of the business. In reality, financial capital is easily convertible into real capital, so in general terms it does not matter much to distinguish in which type of capital the increase is seen. A capital increase can take place when investors make larger investments or when the owners themselves pour more money into their businesses. It can also take place as a result of the issuance of new shares. Furthermore, it can occur when the capital stock increases in nominal value.

The financial position of a company improves with a capital increase. With more capital, the company can increase its production, marketing and sales. You can expand your existing operations or even venture into new fields that feasibility studies indicate may be lucrative for the company. With an increase in capital, there is greater freedom to increase inventory, buy more machinery, upgrade to more high-tech equipment, etc.

To use economic terminology, a capital increase can be used to increase the company’s fixed capital as well as its working capital. The fixed capital is the one used in the purchase of assets that will be permanently in possession of the company. Working capital is what is used to sustain operations, pay expenses, and purchase stocks and credit.

Any and all funds coming into the company must be used wisely, and this also applies to capital increases. It should be remembered that a capital increase may be due to loans granted by banks or other credit institutions; This denotes an increase in the borrowed capital. These loans must eventually be repaid in accordance with the loan agreement.

Smart Asset.

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