“Capital” is one of the most multi-functional and important words in the world of finance. Here, are its most common usages:

Capitalism is an economic system in which companies and individuals privately own the means of production. In socialism, the government owns the plant, property and equipment. A capitalist is an individual who invests in companies and their assets to earn profits.

Physical capital is a tangible asset, consisting of plant, property and equipment. A capital-intensive company uses more plant and equipment and less labor. Capital budgeting evaluates whether a financial investment in physical capital is worthwhile. If it is, the firm makes capital expenditures.

Financial capital is used to acquire physical capital. Companies either borrow (debt, bonds) to buy plant, property and equipment, or use owners’ money (equity) to buy it. The stock and bonds a corporation issues are financial capital.

When firms decide the mix of debt and equity to issue to finance their operations, it is called the capital structure decision.

Capital gains and capital losses are realized when the prices of your investments rise (for gains) or fall (for losses).

Working capital, assets likely to be converted to cash within a year, consists of cash, short-term marketable securities such as treasury bills, accounts receivable (customers that still owe for products purchased) and inventory that will be converted into a finished product and sold within a year. The difference between current assets and current liabilities is called net working capital.

Human capital is the value of your skills, talents and knowledge.

Market capitalization (“market cap”) is the total value of a firm’s common stock, computed as the stock price times the number of shares outstanding.

Companies are capitalized when they issue shares of common stock and/or bonds. You may capitalize on an opportunity by using it to your advantage.

Venture capital describes investing in the stock of a startup company.

THE LESSON

The examples above will help you understand common corporate financial jargon. Unless you are employed in a large company, you may never use these phrases. But if someone tosses around these terms, they will no longer intimidate you. Knowledge is power. You have just increased your intellectual capital; keep it up.

In 2005, Thomas Friedman wrote a worldwide best seller, The World is Flat: A Brief History of the 21st Century. His observations and predictions about geo-political, technological and economic forces have since been studied and quoted in college classrooms, corporate boardrooms and even the halls of Congress.

His thesis, which serves as the flattened world metaphor, is that global competition for resources, talent and venture capital is playing out on a level playing field. Technology and human capital are driving forces behind that leveling.

Friedman’s quote captures the essence of the human dimension in a flattened world. Financial and physical capital will always be important, but a flattened world makes them secondary to intellectual capital. You may be the smartest, most innovative and energetic person wherever you work, but your competition is not in your company. It is anyone in the world with access to hardware, software and broadband.

Once you fully grasp that Google provides information access to anyone and anywhere at any time, you understand why the world is flat. In this increasingly flattened world, your most important capital is intellectual capital: what you know, how you apply it, and how you work with others.

The good news is your intellectual capital is potentially infinite and renewable. The only constraints are those you impose. Intellectual capital: Say it three times, internalize it and accept it as your personal mantra as you move forward in this increasingly flattened world.