What balance sheet items are included in equity. Share capital in the balance sheet
In fact, the company's equity capital consists of the authorized capital, additional and reserve capital, retained earnings and various special funds. This also includes amounts after revaluation of non-working assets and own shares bought back from shareholders. At the same time, the latter indicator is taken into account in the balance sheet liability as negative and, when summed up, reduces the amount of the company's equity capital. This is logical - if the authorized capital, which is part of the equity capital, is formed when the shares are paid by shareholders, then their buyback should lead to its decrease.
Authorized capital
Extra capital
Reserve capital
Undestributed profits
Consider example no. 1
Example No. 2
Accordingly, in this example, the company's equity capital will be: (700 + 300) - (300 + 300) = 400 thousand rubles.
An enterprise's equity capital is its basic platform on which all further business development is based. The higher this indicator, the more stable the company, the more attractive it looks to investors. Consider two options for formulas and examples of how you can determine the amount of the company's equity capital from the balance sheet.
Determination of equity
Equity capital of an enterprise is the aggregate of its net assets, initially invested by the founders, plus retained earnings.
In fact, the company's equity capital consists of the authorized capital, additional and reserve capital, retained earnings and various special funds. This also includes amounts after revaluation of non-working assets and own shares bought back from shareholders.
At the same time, the latter indicator is taken into account in the balance sheet liability as negative and, when summed up, reduces the amount of the company's equity capital. This is logical - if the authorized capital, which is part of the equity capital, is formed when the shares are paid by shareholders, then their buyback should lead to its decrease.
Authorized capital- is formed during the formation of the enterprise and consists of the contributions of the founders.
Extra capital is formed if the founders of the company invest in it additional funds in excess of their share in the authorized capital. In addition, an additional fund can be formed in the event of receiving income from the issue, funds from the revaluation of non-working assets and a part of the profit remaining after distribution can also be sent here.
Reserve capital- these are funds set aside by the company for various force majeure, so that losses can be reimbursed.
Undestributed profits- this is the remaining available funds from the profit after the company has paid all tax and other mandatory payments. The balance sheet for this line also reflects the balances of various special funds formed at the enterprise.
Equity by balance
If we take the current form of the balance sheet (OKUD 071001, taking into account the latest edition of 04/06/2015), then the indicator of the amount of equity capital can be found in the final line of section III "Capital and reserves". Accordingly, the equity capital will be equal to the sum of the lines in this section.
Consider example no. 1 determination of equity on the balance sheet.
Accordingly, equity at the end of the first quarter of 2016 will be equal to: (15.0-5.0) + 1.2 + 50.0 + 255.0 = 316.2 thousand rubles. If you look at the previous periods, it becomes noticeable that the company is in the stage of active growth of its financial well-being.
This formula for determining equity capital is most often used in accounting. There is a second way to find the indicator - through the left, active part of the balance. In this case, the company's equity capital is defined as the aggregate of non-working and current assets (lines 1100 and 1200) minus long-term and short-term liabilities (lines 1400 and 1500).
Example No. 2
Accordingly, in this example, the company's equity capital will be: (700 + 300) - (300 + 300) = 400 thousand.
The size of equity capital is growing - the investment potential of the company and its financial strength are also increasing. This is an important indicator of the economic condition of the enterprise. If it is backed by its own funds, it does not have to resort to loans, which speaks of stability and independence. In existing realities, of course, few people do without borrowed funds, but if the amount of equity capital is sufficient, one should not be afraid for the financial independence of the enterprise.
13. ANALYSIS OF THE FINANCIAL AND ECONOMIC SITUATION OF THE ENTERPRISE
Business management of an enterprise is the most important condition for achieving positive economic results.
How to determine equity capital from the balance sheet?
Every day, the enterprise is forced to perform a huge number of various functions related to maintaining normal production processes, timely provision of all types of resources, making various payments, etc. Therefore, at regular intervals at the enterprise, it is necessary to make calculations to clarify the achieved economic results.
To disclose one or another side of economic activity, an enterprise uses various types of analysis, each of which differs in purpose, techniques and other features.
One of these types of analysis is financial analysis based on ratio analysis.
Financial ratios can be divided into four main categories:
indicators of profitability (profitability);
solvency (liquidity) indicators;
indicators for assessing the capital structure;
capital turnover indicators (business activity).
Financial ratios are shown in Table 2.
table 2
Financial ratios
Name of coefficients | Calculation formula | Physical sense |
1 | 2 | 3 |
Profitability indicators | ||
1. Return on total assets (capital) by gross (balance sheet) profit | Balance sheet profit
Average annual balance sheet (total assets) |
This ratio shows how efficiently funds are invested, regardless of their source, including own funds (equity capital), short-term and long-term bank loans. The calculation for this indicator allows you to compare projects that have different tax benefits |
2. Return on total assets (capital) by net profit | Net profit
Equity |
This coefficient shows what is the level of return on the total investment in the project for a specified period of time. |
3. Return on permanent (long-term, investment) capital | Net profit
Permanent capital Fixed capital = total assets - current liabilities = equity + long-term liabilities |
Exclusion from short-term liabilities allows you to smooth out fluctuations associated with changes in current economic activity |
4. Return on equity (equity) capital | Net profit
Equity |
This indicator characterizes the efficiency of using own (share) capital and is of greatest interest to the owners (shareholders) of the projected enterprise. |
5. Return on sales | Gross profit from sales (net profit)
Revenues from sales |
This indicator reflects the efficiency of the enterprise for the production and sale of products. This indicator cannot be considered as a criterion for the effectiveness of the project, since capital investments are not taken into account when calculating it. |
6. Cost of sales (costs per 1 rub. Of products sold) | Full cost
Revenues from sales |
This indicator is used when analyzing the cost policy of the enterprise. |
7. Product profitability (profitability level) | Gross profit from sales (net profit)
Full cost of production |
|
Liquidity indicators | ||
1 | 2 | 3 |
1. Absolute liquidity ratio | Easily realizable (highly liquid) assets
Short-term liabilities Marketable assets = cash + marketable securities |
This ratio characterizes the project's ability to cover short-term liabilities. In practice, this ratio is one of the most common criteria for the reliability of an enterprise in terms of payment and repayment of short-term bank loans. |
2. Current liquidity ratio (total liquidity ratio, coverage ratio) | Current assets
Short-term liabilities |
|
Indicators for assessing the capital structure | ||
1. Ratio of financial dependence | The entire amount owed (borrowed funds)
Balance sheet asset total (total assets) |
Capital structure assessment ratios refer to indicators characterizing financial risk. They allow you to assess the extent to which existing external liabilities are covered by the property (assets) of the project. The financial dependence ratio shows how the assets of the enterprise are financed by loans. When calculating this ratio, the numerator is the sum of all short-term borrowed funds and long-term borrowed funds. |
2.
Autonomy ratio |
Equity
Balance asset total |
|
3. Ratio of long-term borrowing | Long-term debt
Equity + long-term liabilities |
This ratio shows what share of permanent (long-term) capital is provided by lenders |
4. Ratio of the ratio of borrowed and own funds | The entire amount owed
Equity |
|
5. Indicator of provision with own funds | Own invested capital
The amount of the requested loan |
In some cases, when considering the issue of granting loans for a project for small businesses, this indicator is calculated. It must be greater than or equal to 1. An alternative to raising borrowed funds is the issue of shares (entrainment of equity capital) or reinvestment of profits that should be distributed as dividends. The choice of the optimal combination of own and borrowed funds in a stable economic situation is a choice between a relatively lower cost of loans compared to dividends and the risk associated with obligations to service external debt, which do not allow deferred payments. In this case, it is necessary to take into account the so-called "leverage effect", which consists in the fact that with an increase in the share of borrowed funds, the level of return on equity per share grows. Nevertheless, the high proportion of all external sources of financing reduces the project's agility in terms of the possibility of attracting additional financial resources. |
Capital turnover indicators | ||
1 | 2 | 3 |
1. Ratio of total capital (assets) turnover | Revenues from sales
Average annual cost of equity |
|
2. Ratio of constant capital turnover | Revenues from sales
Average annual constant capital |
|
3. Ratio of equity capital turnover | Revenues from sales
Average annual cost of equity |
An increase in capital turnover can be achieved by increasing the object of sale at a constant value of assets or, conversely, by reducing the object of investment required to ensure a given level of implementation. A whole group of indicators of turnover between used to determine the speed of cash flow through various current accounts of the operating enterprise (accounts payable, stocks of materials in the warehouse, work in progress, etc.). Due to the specifics of preparing the initial data for the project, such information will not have any special value. It is advisable to assess only the working capital turnover. |
4. Ratio of working capital turnover | Revenues from sales
Working capital |
Sometimes the estimated turnover of inventories and other types of current assets and liabilities (accounts payable, accounts receivable) is calculated |
5. Ratio of turnover of commodity - tangible assets | Cost of realized products
The average annual cost of inventory (including the cost of annual products in stock) |
This indicator indicates how effectively inventory management is carried out, and depends on the type of product, the stability of the supply of materials and components, as well as the efficiency of their use in production. |
YAGPU, Department of Educational Information Technologies
19.05.2010
Small businesses, like any other commercial firms with the status of legal entities, are obliged to form financial statements based on accounting data. However, enterprises in the corresponding status have a number of preferences in terms of filling out reporting documents. How are they expressed? What are the nuances of filling in the most important informative blocks of financial statements - the lines in the "Capital and reserves" section of a small business?
What is accounting?
First, a little theory about accounting. The facts about it will be useful for us in terms of understanding the challenges facing the financial services of any commercial firm.
Above, we noted that the financial statements should be formed by enterprises in the status of legal entities. This is an important nuance, since individual entrepreneurs, who, from the point of view of the legislation of the Russian Federation, are individuals, do not have to keep accounting, as well as fill out reports on the basis of the corresponding registers. The obligations of the individual entrepreneur in terms of financial accounting are reduced to maintaining the Book of Income and Expenses.
Under the accounting statements of a legal entity, it is customary to understand a set of information that reflects the results of the economic activity of an enterprise within the reporting period. This information is formed mainly due to the indicators recorded in the accounting registers.
The considered type of reporting refers to the key in the enterprise, along with tax and management. The information that is reflected in it is used to assess the financial condition of the company, the prospects for its growth, the correctness of significant indicators of economic activity, as well as tax reporting. This information may be of interest to managers, company owners, government agencies.
Accounting plays an important role in the interaction of the enterprise with potential creditors and investors. Persons interested in investing in the company will seek to consider reliable sources that allow to adequately assess the financial condition of the company. Among those that fully satisfy these criteria are financial statements. It is drawn up and certified by competent employees of the company, sometimes with the involvement of external independent consultants who can analyze how correctly one or another section of the balance sheet is filled out ("Capital and reserves", for example), what points can be improved in the used reporting procedure ...
The advantage of the sources under consideration is their regularity. Financial statements can be prepared once a year and more often - depending on the requirements of the legislation, as well as the wishes of interested parties, for example, owners and creditors. Financial statements, as a rule, are drawn up according to standard forms, which are approved by the regulatory authorities - first of all, by the Ministry of Finance of the Russian Federation. It reflects a variety of economic indicators: asset, balance sheet liability, capital and reserves of the company.
Financial statements should correlate with primary sources, as well as the registers used by the financial services of the enterprise. The most important task of the considered type of reporting is the identification of significant facts reflecting the financial stability of the company, the availability of certain reserves, the dynamics of income and expenses.
What are the features of small business accounting?
Accounting for small businesses can differ significantly from the corresponding procedures that characterize the activities of medium and large firms. First of all, it is worth considering the criteria for classifying an economic entity as a small enterprise. This includes the company:
- in which the authorized capital is more than 25% private;
- which employs from 15 to 100 people, and the annual revenue is 120-800 million rubles (if an economic entity has a smaller staff and turnover, then it will belong to a micro-enterprise).
The main feature of small business accounting is the ability to conduct it in a simplified format. It differs significantly from the general accounting scheme, which involves:
- filling out a balance sheet, a statement of financial results, as well as various applications that supplement them;
- execution of an audit report in cases stipulated by law;
- preparation of an explanatory note to the balance sheet and the statement of financial results.
Among the main sections of the financial statements - "Capital and reserves" in the balance sheet. This is an information block that reflects the financial indicators, the most important from the point of view of assessing the economic efficiency of the company. The general procedure for conducting accounting involves its mandatory filling. The simplified one also involves filling in the "Capital and reserves" section of the balance sheet. This is a mandatory component of the reporting of commercial firms, despite the fact that the simplified accounting procedure is characterized by a number of significant preferences for small businesses. Namely:
- the ability not to draw up annexes to the balance sheet and an explanatory note to it (if there is no objective need for this);
- the ability not to include figures on economic results within groups of articles in reporting documents (that is, there is no legal requirement to indicate indicators for specific articles).
As for the accounting itself, a small business can keep it both in a simple form, without registers, and in a standard one. At the same time, a company that has the appropriate status and enjoys the statutory preferences for simplified accounting must bear in mind that the recording of business transactions must comply with the criterion of rationality. Experts recommend following a similar rule when drawing up reports.
So, it makes sense, if possible, to specify the indicators for individual items within the section "Capitals and reserves" in the balance sheet of a small enterprise. Let's take a closer look at how the corresponding reporting area can be filled out.
Filling out the section "Capital and reserves" in the balance sheet: what information is reflected in it?
The section "Capital and reserves" in the balance sheet is an information block, which consists of 7 lines. The task of the accountant is to reflect in them such indicators as:
- the size of the authorized capital of the company;
- the price of the company's own shares that have been purchased from their owners;
- the amount of additional, reserve capital;
- the amount of retained earnings or the amount of uncovered loss of the organization.
The size of the company is reflected in line 1310. Let us study the specifics of its filling in more detail.
Authorized capital in the balance sheet: line 1310
This line of the balance sheet ("Capital and reserves") assumes the reflection of the amount of the authorized capital corresponding to that defined in the constituent documents of the enterprise. The fact of partial payment by any of the founders of the company for their share does not matter. Even if any of the investors, in principle, did not contribute the required amount to the authorized capital, the corresponding indicator is recorded in the “Capital and reserves” section in the balance sheet.
For the correct filling of the line in question, you should use the credit balance for account 80, which is used in the accounting registers. Next, the accountant needs to reflect the correct information on the company's own shares.
Own shares in the balance sheet: line 1320
Filling in the corresponding line in the "Capital and reserves" section in the balance sheet is a procedure that may be characterized by some peculiarities for companies in the status of JSCs and LLCs.
So, when generating reports and reflecting data on it in line 1320, they indicate information on own shares that are redeemed directly from their holders. LLCs record information on the value of shares within the authorized capital, which are purchased, in turn, from the founders of the enterprise.
To fill in the line under consideration in the "Capital and reserves" section, it is necessary to use the data on the debit balance within the framework of account 81. Next, it is necessary to reflect in the reporting information on additional and reserve capital. Let's study the nuances of this procedure in more detail.
Additional and reserve capital in the balance sheet: line 1350
Relevant information is the most important characteristic of such a source as the balance sheet ("Capital and reserves"). What is included in them?
As for the additional capital, it can be formed in 3 ways:
- upon revaluation of assets classified as non-current;
- at the expense of income generated in the process of issuing securities (if, for example, the company's shares are traded at a value exceeding par), at the expense of the founders' contributions - if we are talking about an LLC;
- at the expense of the restored VAT at the time of transfer of this or that property to the authorized capital.
In order to correctly reflect the numbers on line 1350, you must use information within the credit balance on account 83. The company's reserve capital is also reflected in the "Capital and reserves" section. The code of the line in the balance sheet intended to indicate the value of this resource is 1360.
Information on the corresponding in the financial statements reflects firms that have a reserve fund. In the general case, these are joint-stock companies, since they are obliged to form it by virtue of the requirements of Russian legislation. AO is formed at the expense of compulsory deductions - in the amount of 5% of net profit and more. As soon as it reaches the value prescribed in the constituent documents of the enterprise, then the corresponding deductions can be stopped. In this case, the size of the reserve fund should be 5% or more of the size of the authorized capital of the company.
Of course, an LLC also has the right to form an appropriate fund. Its size and the procedure for transferring capital in order to create an appropriate resource are determined in the management policy of the organization.
In order to correctly reflect the reserve capital figures in the balance sheet, you must use information about the credit balance within account 82. The next information block in the "Capital and reserves" section in the balance sheet is line 1370. It reflects data on retained earnings of the company.
Retained earnings in the balance sheet: line 1370
Information on line 1370 of the balance sheet must reflect all firms with commercial turnover. The corresponding indicator can be represented by profit or uncovered losses. In order to enter the correct data in the line in question, it is necessary to use the information from account 84. In this case, it may be necessary to transfer the debit or credit balance of the corresponding account to the balance sheet. Note that by that time, the company’s balance sheet should be reformed. It involves closing accounts such as 90, 91, and 99.
Another important block in the section "Capitals and reserves" in the balance sheet of a small enterprise is line 1320. It reflects the value of the company's own shares.
Own shares in the balance sheet: 1320
Information on this line can be recorded by both JSCs and LLCs (if the company buys out certain shares from the founders who go out of business). JSCs reflect in the corresponding block the cost of securities that are redeemed from their owners, LLC - shares within the authorized capital acquired from the founders.
In order to correctly reflect the information in line 1320, the accountant needs to use the data on the debit balance within account 81.
Small business reporting: other nuances
So, we examined how the accountant of a small enterprise is filled in by the accountant of a small enterprise, Section III of the balance sheet - "Capital and reserves". It will be useful to study additionally a number of other information characterizing the formation of financial statements in a company with the corresponding status.
The legislation of the Russian Federation allows small businesses to independently develop documents through which reporting will be generated. For example, if a company does not fill out one or another balance sheet item (“Capital and reserves” includes, as we now know, quite a few lines, and not all of them will necessarily be filled in by the company - in some cases, it simply may not have the necessary data) , then she has the right to exclude it from those forms that are used for reporting purposes.
A small business applying simplified accounting methods can use registers without. But this opportunity should be used only if the appropriate accounting scheme does not interfere with retrieving the required information to fill in such an information block of accounting statements as the "Capital and reserves" section. The balance sheet liability, as well as its asset, in many cases can be correctly filled only if the accounts are considered in the context of a double entry for various business transactions.
Another nuance that characterizes accounting in a small enterprise is the ability to reduce the total number of synthetic accounts. The fact is that firms that are larger are obliged to apply the appropriate accounts according to the list, which is approved by law. On its basis, an internal corporate working chart of accounts is drawn up. In turn, small enterprises, if accounting is carried out in them within the framework of a limited list of business transactions, have the right not to use them that are mandatory for large firms and not to approve them in the work plan. However, the existing ones should fully reflect the essence of business processes. The accountant should have no problem with how to calculate the capital and reserves in the balance sheet using registers.
It can be noted that many firms in practice do not use this opportunity precisely in order to avoid situations when there is not enough information in the accounting registers to fill out a particular information block in the financial statements. But if a company is confident that such precedents can be avoided, it has the right to use a simplified scheme for registering business transactions. For this, for example, a small in volume and not complex in structure the Book of Account can be used.
Summary
So, we have studied the essence of accounting in a small business, examined what is the balance sheet ("Capital and reserves"), what is included in it. Firms with the appropriate status, by virtue of the law, have the right to keep accounting according to simplified schemes, as well as generate reports using less complex registers and documents. But in terms of filling out the balance sheet, small businesses actually have few advantages over larger ones, since significant economic indicators are recorded in the corresponding information blocks. It is undesirable to ignore them when preparing reporting - the key source of information about the financial position of a commercial firm.
In economics, there are two approaches to defining the essence of equity capital:
- Equity capital includes all assets of the company, which are fixed without taking into account the obligations of the relevant entities;
- Equity capital consists of a set of indicators that add up the capital of enterprises.
Often, the concept of equity is used along with the concept of net assets, both of which correspond to the volume of the company's assets minus liabilities.
Equity in the balance sheet includes a system of the following indicators:
- The amount of the authorized, reserve and additional capital,
- Retained earnings
- Revaluation of the company's non-current assets,
- Own shares purchased from shareholders.
These paragraphs correspond to lines of the balance sheet 1310-1370.
Equity balance sheet formula
Traditionally, the amount of equity is calculated according to the balance sheet, while equity is reflected in line 1300 of the balance sheet:
SC = line amount 1300
Often, when assessing equity capital, its annual value is used, which makes it possible to more accurately determine its fluctuations over time. The formula for equity capital for the year looks like this:
SK = (SKng + SKkg) / 2
Here SK is the sum of the annual equity capital,
SKng, SKkg - the amount of equity at the beginning and end of the year.
Equity formula for the Ministry of Finance
More accurate is the calculation of the equity capital formula in accordance with the method of the Ministry of Finance. According to this method, the structure of assets that are accepted for calculating equity capital must contain all assets, excluding assets reflecting the debts of founders and shareholders in their contributions to the authorized capital of the enterprise. At the same time, it is necessary to take into account all obligations, excluding some deferred income, primarily related to the receipt of state aid and with the free receipt of any property.
According to the method of the Ministry of Finance, in calculating the equity capital formula, information is taken from the lines:
- 1400,
- 1500,
The equity capital formula, which can be used to determine the amount of net assets and the amount of equity in the balance sheet, implies the following actions:
- Determination of the sum of lines 1400 and 1500 BB,
- From the sum of lines 1400 and 1500, indicators are deducted that correspond to the credit of account 98 (assistance from the state, gratuitous receipt of property),
- From line 1600, the indicators are deducted that are reflected by the posting Dt75 Kt80,
- The result of point 4 is subtracted from point 3.
In general terms, the formula for equity capital according to the Ministry of Finance looks like this:
SC = (line 1600 - DUO) - ((line 1400 + line 1500) - DBP).
Equity capital ratio
The result of the calculation using the equity capital formula must be positive. If the company received a negative result of equity on the balance sheet, this indicates significant problems.
The data is taken from the balance sheet for the respective reporting periods.
The desired result is when the value of equity capital (net assets) is greater than the value of the authorized capital of the enterprise. This fact is important from the standpoint of maintaining the investment attractiveness of the business. Any business must pay for itself while ensuring the flow of new capital. Adequate equity capital is one of the most important indicators of the quality of a company's business model.
Examples of problem solving
EXAMPLE 1
Exercise | Calculate the amount of equity capital of the company "Vostok-Service" in the presence of the following indicators: Non-circulating assets - 18,000 thousand rubles, Long-term liabilities - 1,100 thousand rubles, Short-term liabilities - RUB 10,500 thousand, Current assets - 11,055 thousand rubles. |
Solution | We will solve this problem taking into account that the asset and liability are equal (A = P), while the asset includes current and non-current assets (A = OA + BA), and the liability includes equity and borrowed capital (Liability = SK + long-term and Short-term liabilities). SK = Passive-DO-KO The liability is equal to the asset, so we find the liability: A = P = 11055 + 18000 = 29 055 thousand rubles. SK = 29055-1100-10500 = 17455 thousand rubles. |
Answer | SK = 17455 thousand rubles. |
An enterprise's equity capital is its basic platform on which all further business development is based. The higher this indicator, the more stable the company, the more attractive it looks to investors. Consider two options for formulas and examples of how you can determine the amount of the company's equity capital from the balance sheet.
Determination of equity
Equity capital of an enterprise is the aggregate of its net assets, initially invested by the founders, plus retained earnings.
In fact, the company's equity capital consists of the authorized capital, additional and reserve capital, retained earnings and various special funds. This also includes amounts after revaluation of non-working assets and own shares bought back from shareholders. At the same time, the latter indicator is taken into account in the balance sheet liability as negative and, when summed up, reduces the amount of the company's equity capital. This is logical - if the authorized capital, which is part of the equity capital, is formed when the shares are paid by shareholders, then their buyback should lead to its decrease.
Authorized capital- is formed during the formation of the enterprise and consists of the contributions of the founders.
Extra capital is formed if the founders of the company invest in it additional funds in excess of their share in the authorized capital. In addition, an additional fund can be formed in the event of receiving income from the issue, funds from the revaluation of non-working assets and a part of the profit remaining after distribution can also be sent here.
Reserve capital- these are funds set aside by the company for various force majeure, so that losses can be reimbursed.
Undestributed profits- this is the remaining available funds from the profit after the company has paid all tax and other mandatory payments. The balance sheet for this line also reflects the balances of various special funds formed at the enterprise.
Equity by balance
If we take the current form of the balance sheet (OKUD 071001, taking into account the latest edition of 04/06/2015), then the indicator of the amount of equity capital can be found in the final line of section III "Capital and reserves". Accordingly, the equity capital will be equal to the sum of the lines in this section.
Consider example no. 1 determination of equity on the balance sheet.
Accordingly, equity at the end of the first quarter of 2016 will be equal to: (15.0-5.0) + 1.2 + 50.0 + 255.0 = 316.2 thousand rubles. If you look at the previous periods, it becomes noticeable that the company is in the stage of active growth of its financial well-being.
This formula for determining equity capital is most often used in accounting. There is a second way to find the indicator - through the left, active part of the balance. In this case, the company's equity capital is defined as the aggregate of non-working and current assets (lines 1100 and 1200) minus long-term and short-term liabilities (lines 1400 and 1500).
Example No. 2
Accordingly, in this example, the company's equity capital will be: (700 + 300) - (300 + 300) = 400 thousand rubles.
The size of equity capital is growing - the investment potential of the company and its financial strength are also increasing. This is an important indicator of the economic condition of the enterprise. If it is backed by its own funds, it does not have to resort to loans, which speaks of stability and independence. In existing realities, of course, few people do without borrowed funds, but if the amount of equity capital is sufficient, one should not be afraid for the financial independence of the enterprise.
Modern economic conditions are characterized by the desire of many firms to overcome the crisis and develop successful prospects for the development of debt policy, since borrowing is part of the economic activity of any company, which allows maintaining the capital structure, financial condition and creditworthiness. A necessary element of such a policy is to provide an information base to determine the need for attracting borrowed sources with the need to maintain the company's financial flexibility and diversify funding sources.
The fulfillment of such tasks is possible only if the enterprise is provided with an accounting and analytical base that allows recording the company's economic activities related to debt obligations, reflecting the costs of attracting debt sources.
The essence of the concept
Debt capital represents various debt obligations of the company, which are formed from external sources of financing.
Raising borrowed capital within reasonable limits is profitable, since the cost of servicing it (interest paid) is written off as expenses, that is, it reduces taxable income.
An increase in the share of borrowed capital in the structure of funding sources entails an increase in the financial risk personified by this company, a decrease in the reserve borrowed capital and an increase in the weighted average cost of the company's capital.
Classification
The main features for identifying types of debt capital are shown in the table below.
Typology |
|
Period (term) |
|
|
|
Sources of attraction |
|
Attraction form |
|
Attraction methods |
|
Security form |
|
How is it reflected in the balance sheet?
The borrowed capital is reflected in the balance sheet using 4 and 5 sections of the balance sheet. Section 4 is for displaying long-term and 5 for short-term liabilities.
A separate line that discloses the value of material assets attracted from outside to make a profit is not provided in the form of a balance sheet. However, based on the data in the report, you can calculate the total amount of borrowed capital.
Since the borrowed capital is the sum of the 4th and 5th sections of the balance sheet, the formula for its calculation can be presented as follows. The borrowed capital and the balance sheet formula looks like this:
ZK = p. 1400 + p. 1500
- ЗК - borrowed capital, t. P.;
- p. 1400 - long-term liabilities, t. p.;
- p. 1500 - short-term liabilities, t. p.
Thus, borrowed capital is understood as the monetary form of debt obligations, which can be calculated as the sum of 4 and 5 sections of the balance sheet. This indicator is reflected in the balance sheet in the context of items by source of funding.
The amount of borrowed capital in the balance sheet in lines 1400 and 1500 represents the amount of financial liabilities, which can be formed in the following form:
- loan agreements;
- credit agreements;
- agreements on commodity loans.
This type of capital is a powerful resource that a company may need in any situation.
The borrowed capital in the balance sheet is broken down by categories and lines:
- p. 1410 reflects outstanding loans of a long-term nature;
- line 1420 reflects deferred VAT debt;
- p. 1430 keeps records of estimated liabilities;
- p. 1450 takes into account other long-term liabilities;
- p. 1510 takes into account short-term borrowed funds, which reflect the body of the loan and interest;
- p. 1520 keeps records of short-term accounts payable;
- p. 1530 keeps records of debts on obligations to the members of the firm;
- p. 1540 keeps records of estimated liabilities for less than 12 months;
- p. 1550 reflects short-term payables not previously accounted for in pp. 1510-1540.
Analytical indicators
Among the informative indicators taken into account when assessing the borrowed capital in the balance sheet, one can single out:
- debt burden ratio. The calculation of this value corresponds to the formula:
Кдн = Д / EBTIDA,
- D - the amount of debt obligations, t. P.;
- EBTIDA is an analytical indicator defined as the difference between the volume of the firm's profit before deducting interest, tax and depreciation expenses, i.e.
The ratio of this coefficient is determined in the range of 2-2.5. Long-term loans and borrowings (in international practice), short-term loans and borrowings (in Russian practice) can be considered as debt.
- financial leverage indicator (debt capital ratio on the balance sheet), which is determined by the formula:
FR = (DO + KO) / SK,
- DO - long-term liabilities, t. P.;
- KO - short-term liabilities, t. P.;
- SK - equity capital, i.e. p.
The recommended standard is 0.25 - 1. With a value of 0.25, we can conclude that the debt burden is favorable for the company, which indicates a positive assessment of its creditworthiness. With a value close to 1, the load is considered maximum. If the value of the debt capital ratio according to the balance sheet formula goes beyond 1, then the creditworthiness is assessed negatively.
- share of financing of fixed assets at the expense of long-term loans:
D = DO / VA,
where VA - non-current assets, i.e.
Raising loans to finance fixed assets is justified, since these amounts are offset further by the cash flows generated by these fixed assets.
- the ratio of working capital and short-term loans is determined by the formula:
SOB = OA / KO,
where OA is the company's working capital, i.e.
The standard for this indicator varies from 1.5 to 2.
As a result of the analysis of these indicators regarding the use of the company's debt obligations, we can conclude about its creditworthiness. The information base obtained on the basis of the calculation of the presented indicators also allows the management to develop a number of measures aimed at increasing the company's creditworthiness.
Interaction of equity and debt capital
The relationship between these two structural elements represents the role of financial leverage that is present in companies that do not have the required amount of finance to conduct business, or to expand it. In such a situation, borrowed funds meet the needs of the company in the current period and make a profit. But the size of the ratio between equity and debt in the balance sheet plays a large role and affects the financial stability of the company.
With a significant excess of the amount of borrowed funds over own funds, bankruptcy is possible. At the same time, a risky policy of using borrowed capital is the most profitable.
The following options for using levers are possible:
- positive application: in this case, the income from borrowed funds exceeds the payment for their use, the company makes a profit;
- neutral application: the income from borrowed funds is equal to the cost of their maintenance;
- negative application: here the company incurs losses, the use of the loan does not pay off.
Areas of optimization of debt capital
In order to increase the company's creditworthiness using the information base on debt obligations, it is proposed to improve the methodological approaches to reflecting and assessing the company's activities with borrowed funds. In order to manage debt obligations and ensure the creditworthiness of the company, it is necessary to generate data of different degrees of generalization: consolidated and more detailed.
Accounting optimization suggestions
The proposed structure for constructing accounts for accounting for the company's debt funds in order to increase its creditworthiness is as follows:
- first-order accounts, which combine all possible data on the state of the company's borrowed funds (both long-term and short-term);
- second-order accounts, which are able to reflect accounting information on generalized types of debt obligations, such as: loans and borrowings;
- third-order accounts are able to detail information on a more specific type of obligation, for example, a commercial loan, a loan agreement, etc.;
- fourth-order accounts, which are able to record information on various types of settlements, for example, debt, interest, fines, etc.
Such a grouping of accounts for a company will allow a more in-depth study of analytical accounting for all types of company debt. It is also able to improve control in this area, improve the efficiency of the firm's debt management, and enhance creditworthiness. It is recommended to improve the control system by introducing internal reports in the company, as well as the dynamics and structure of borrowed funds. Such reports can be compiled every month and submitted to management by the 25th. They will allow the management to monitor timely negative trends in the structure of borrowed funds and capital of the company, to eliminate them in time, thereby increasing the efficiency of debt management and indicators of the company's creditworthiness.
Improving management efficiency
To improve the efficiency of debt obligations management, it is possible to introduce a workflow schedule, introduce the position of an accountant for debt obligations. The duties of such an accountant may include:
- control over the correctness of processing of primary documents on the company's debts;
- checking the correctness of the calculation of interest;
- checking the correctness of the reflection of operations for accounting for the company's debts.
The introduction of these procedures helps to reduce the percentage of errors and inaccuracies in accounting.
Conclusion
The implementation of all the proposed measures will allow the company to closely monitor the structure and composition of debt obligations, control negative trends and reduce them towards increasing the company's creditworthiness, and develop positive development dynamics.