Definition

Capital requirements refer to the total amount of funds a business needs to establish, grow, or maintain its operations. It is the difference between planned expenditures (investments, operating costs) and expected revenues.

Applications

Capital requirements play a crucial role in various business situations:

• Startup: To start a business, financial resources are needed for investments in fixed assets, working capital, and to bridge the startup phase.
• Expansion: When expanding a business, such as by opening new branches or introducing new products, additional capital is required.
• Investments: Investments in new technologies, machinery, or real estate often require a capital increase.
• Crisis Situations: In difficult economic times, a company may need additional capital to secure its liquidity or offset losses.

Types of Capital Requirements

Capital requirements can be divided into different categories:

• Initial Capital: The capital required to start a business, including all one-time costs.
• Operating Capital: The ongoing capital required to finance day-to-day business operations.
• Investment Capital: The capital required for investments in fixed assets to expand or modernize the business.
• Working Capital: The capital required to finance working capital, such as inventory or receivables.