Borrowed capital refers to funds obtained by a firm through loans or other forms of debt to finance its operations or investments. Compared to equity financing, borrowed capital involves a fixed cost in terms of interest payments.
In finance and accounting, 'capital' refers to various forms of assets, interests, or financial contributions that play a critical role in the functioning of an entity or the production process, enhancing productivity and enabling operations.
The cost of capital is the return, expressed in terms of an interest rate, required by an organization to finance its activities. It can vary depending on the types of capital employed, such as equity share capital or loan capital. A unique weighted average cost of capital (WACC) is often computed for each organization based on their specific mix of capital sources. The cost of capital is frequently used as a hurdle rate in discounted cash flow calculations.
Debt is an amount of money borrowed by one party from another, which is often incurred by businesses and individuals to finance specific activities or projects.
Debt capital refers to borrowed funds that a firm utilizes to support its business operations, growth, or investment projects. These funds come with the obligation to pay back with interest and can be sourced from various lenders, such as banks, bond investors, or other financial institutions.
In current-cost accounting, a gearing adjustment is a financial modification that reduces the charge to the owners for the effect of price changes on depreciation, stock, and working capital. This adjustment is rationalized by the fact that a part of the extra financing is provided by the loan capital of the business.
Loan capital refers to the funds borrowed by an organization to finance its operations, subject to the payment of interest over the life of the loan, which is repaid at the end of the loan term.
