Reduction of capital

Okay kiddo, so let's say you have a piggy bank with 10 coins in it. That's a lot of money, right?

But what if you want to use some of that money to buy a toy or some candy? Well, you can take out a few coins from your piggy bank to pay for it.

That's kind of like what "reduction of capital" means for a company. A company might have a lot of money (capital) saved up, but they might not need all of it for their business. So they can "reduce" their capital by taking some of that money out and using it for something else.

But just like you have to make sure you have enough coins left in your piggy bank for things you might need to buy later, a company also has to be careful not to take out too much money and leave themselves in a bad situation.

So reducing their capital can be a way for a company to free up some money, but they have to be smart about how much they take out and what they use it for.