Book capital is an important concept in modern finance. It is the total amount of money that an entity has available to it, either in physical assets or in bank deposits and investments. Book capital is often referred to as shareholder equity or shareholder funds. This amount of money represents the total amount of assets held by a corporation and reflects its total equity.
Book capital is typically measured as the sum of the shareholders equity and long-term liabilities. The shareholders equity is the cumulative value of all the shareholders contributions to the corporation. This includes the money an initial shareholder invests in the corporation, and all subsequent investments. It also includes any profits that the corporation distributes to shareholders, such as through dividends, as well as any losses that it deducts from the shareholders equity.
Long-term liabilities are all the debts that the corporation owes to various entities - including its creditors, bondholders, and banks. These debts can include mortgages, credit lines, and other long-term loans. Because all of the liabilities are subtracted from the book capital, any increases in a corporations book capital will reflect a decrease in the level of its long-term liabilities, and vice versa.
Book capital is important to corporations, as it reflects the companys financial health and ability to reach its strategic goals. A corporation with adequate book capital is able to rely on its financial strength to increase or expand its projects and businesses.
It is important to remember that book capital is not the same as market capitalization. Market capitalization is the total value of the companys marketable securities, such as its stocks and bonds, based on its current market price. Book capital, on the other hand, is an amount of money that the company has available to it, regardless of its market value.
Book capital is different from working capital, which is defined as the companys current assets minus its current liabilities. Working capital indicates how much liquidity a company has available to it at any given time. A corporation with adequate working capital is able to cover its immediate needs and obligations.
Book capital is a key metric in a corporations balance sheet. It is calculated by taking the shareholders equity, subtracting the long-term liabilities, and then adding back any accumulated retained earnings. As such, increasing the book capital of a corporation can be beneficial for its shareholders, as it can increase the companys value and future prospects.
