Question

Why is capital a more important measure of the size of a securities firm than the amount of assets? What other measures would be useful, given the diversity of this industry?

Answer 1

Capital is more important measure than amount of asset because capital are more of a permanent nature of source which will help in funding them for a longer period of time and assets are generally owned and they are not the sources of fund which could be used as a multiplier effect.

Assets are held with an objective of future benefits while capital are the source which helps in generating multiplier effect.

Various types of assets are mortgaged so their uses are limited while capital have no restrictions like that.

Capital are owners contribution to the business and that are intended for the long-term while assets add the value to the firm but capital will generate the long term benefit to the business as promoters are intended to be the real owners of the company.

capital are the net worth of the company while assets are units that will generate the future benefits. Capital can be liquidated to generate high level of source of fund, while assets can only be disposed to generate minimal.

so this size as well as the importance of capital is much higher than that of asset because these reflection of the long-term visibility of growth of company.