Classification and economic characteristics of capital in modern agribusiness

Concept and forms of capital in agribusiness

Capital is a complex economic category understood as an asset or valuables that generate a flow of income for their owners (production assets, land, securities, deposits, professional knowledge as human capital, etc.).

The main income from these components of capital is received in the form of:

• rent;
• interest on deposits;
• dividends on securities;
• land rent.

Capital can belong to an individual or a legal entity; it is their accumulated wealth. In production, capital represents all aggregate resources used in entrepreneurial activity and is defined as a factor of production. The value of capital is reflected in the accounting records of an enterprise, which distinguishes equity capital, including authorized, additional, and reserve capital, as well as the accumulation fund and retained earnings.

In accounting, capital is defined as the difference between assets owned by the enterprise by right of ownership and its liabilities to other enterprises, financial bodies, credit institutions, and other liabilities.

Types of capital and their characteristics

Due to the ambiguity of the "capital" category, its various types are distinguished.

Physical capital is considered as capital in the form of material assets. In the factor market, physical capital primarily refers to production assets:

• buildings, structures, and various infrastructure facilities;
• machinery and equipment;
• inventories;
• livestock of the main herd.

Land, without which agricultural production is impossible, holds special importance in the composition of physical capital. Demand for the listed constituent elements of physical capital (factors of production) is derived: it depends on the demand for the products in the production of which this physical capital is involved.

Financial capital includes monetary funds, including those in securities — bonds, bills of exchange, checks, deposit and savings certificates, etc.

Human capital refers to intellectual abilities, knowledge, skills, experience, and entrepreneurial characteristics obtained and accumulated thanks to investments in the expanded reproduction of labor resources during the process of education and training, including practical training. These are the investments that increase a person's physical and mental abilities.

Legal capital is the aggregate of property disposal rights that yield income without labor investment. Due to the formation of new organizational and legal forms of commercial enterprises in agriculture — business partnerships, business companies, joint-stock companies, unitary enterprises, and production cooperatives — the types of capital discussed below are distinguished.

Concept and types of authorized capital of an enterprise

Authorized capital is the sum of the contribution during the organization of a new business entity, representing the basis for starting its activities. It is formed by the owners, who may be the state, shareholders, or equity holders. The authorized capital is fixed in the agreement or charter of the new enterprise.

Instead of cash, the founders may transfer physical capital to the balance sheet of the forming enterprise — buildings, equipment, machinery, breeding livestock, and other property.

There are certain peculiarities in the formation of the authorized capital of a joint-stock company and a limited liability company:

• the size of the authorized capital of an LLC cannot be less than the amount determined by law;
• at the time of registration of an LLC, its authorized capital must be paid by the participants by at least half, with the remaining part paid during the first year of the company's operation;
• the authorized capital of a joint-stock company consists of the nominal value of the company's shares acquired by shareholders.

It is also customary to distinguish between capital: investment capital, invested in long-term investments, and venture capital, invested in high-risk projects.

Classification of capital by the nature of participation in production

Product manufacturing in industry enterprises is provided by that part of capital which is materialized in the means and objects of labor.

Means of labor represent fixed capital, which participates repeatedly in the production of a product and transfers its value to the created product in parts over a number of years, undergoing physical and moral wear and tear. After the sale of goods, the fixed capital is returned to the producer in monetary form in parts.

Objects of labor are working capital, the value of which is transferred to the product during one production cycle, after which their natural form is lost.

Increasing the efficiency of capital usage means reducing the capital intensity of products (works, services) and increasing capital productivity, i.e., the ratio of the amount of capital to the volume of output should decrease, and the inverse ratio should increase accordingly.

Along with the concept of "capital," the concepts of "investments" and "investment resources" are used, which are understood as capital not yet objectified but invested in the means of production.