Capital is the basis for the creation and development offirm. In the process of functioning of the firm, it ensures the interests of personnel, owners, and the state. Every firm that engages in one or another activity must have a certain capital, which is a combination of money and valuables necessary for the provision of economic activity.
Depending on the ownership of a particular enterprise, the funds may be own or borrowed.
Own capital is the value of all fundsfirms that belong to it on the rights of ownership and are used to form a share of assets. They can operate an economic entity when making transactions without any reservations. Own funds have different in content, principles of use and formation of sources of resources: additional, reserve and authorized capital. The structure of equity includes also retained earnings; special funds and other reserves, as well as government subsidies and grants. The main sources of generating own funds are net profit after deduction of taxes and dividends and funds of owners invested in the authorized capital of the company. The amount of the authorized capital is indicated in the charter or in the constituent documents. And you can change this amount only in accordance with the results of the enterprise's activities for the past year and as a result of changes in the data in the constituent documents. Stacking capital (authorized capital, statutory fund) of the enterprise determines the minimum amount of the organization's property, which will guarantee the security of its creditors. Thus, own funds should not be less than the declared statutory fund.
Own capital is to some extent the source of the formation of funds that are used by the enterprise to achieve certain goals.
As part of its own funds, two maincomponents: the capital that was invested by the owners in the organization (invested), as well as the capital that was created over the originally advanced by the owners of the enterprise (accumulated).
The invested funds are formed at the expense ofpreferred and common shares. In addition, it includes additional paid-in capital and valuables received free of charge. The accumulated funds are formed during the distribution of net profit. As a result, equity capital, for example, equity capital of a bank or a trading company, will vary depending on the performance of the firm.
The amount of equity capital
The valuation of own funds is an importantanalytical indicator. In the event that the organization does not have obligations to creditors, then the value of the firm's property will be equal to its own capital. If the company has obligations, then equity is the sum of assets less the amount of liabilities. Therefore, the amount of equity is called net assets.
Total net asset value of the organizationis determined on the basis of the annual balance sheet data in accordance with the established procedure. The valuation is provided in addition to the annual statement of changes in equity.
As a result, we can conclude thatown capital is the means of the enterprise, which are used to form the share of assets. The value of own funds may vary depending on the results of the organization's activities (loss, profit) and determine the value of the assets of the enterprise after deducting its obligations to creditors.