Flow of The Capital
August 21st, 2008
The flow of capital is the amount of money that is received in a specified period. Also called “cash flow” is governed by the same laws between companies and nations: the fresh capital generates output and growth. Among the countries, the flow of capital of an economy to the other is governed by restrictions that seek to ensure the immunity of an economy before the fall of another and suppress the monopolistic practices.
In the world micro, the flow of capital that a company receives is determined by the law of supply and demand: the more produce and will make profitable a company, the greater the flow of capital which receives and the greater the flow of capital to invest.
The flow of capital for a company is composed of assets and liabilities, the values that are owned and the money is spent to keep the chain of production.
Among the assets are: the capital of the company, the credit and loans and the capital of external investors (or shareholders), and (mainly) what clients pay for goods produced by the company. The latter is, without a doubt, the flow of capital more relevant.
Among the liabilities are subtracted the payment of interest by the payment and cancellation of loans, the payment of dividends and profits to investors, purchases from suppliers and expenditure on inputs, investment in equipment, training and salaries of staff… a profitable company obtained as a result of its flow of capital, a positive balance in the assets.
The flow of capital is, in itself, a definition of the role of a company: obtain wealth to generate new wealth.
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Categories: Financial Education
