Composition and capital structure of the enterprise
To assess the economic efficiency of a business, a potential investor should conduct an analysis of the company's capital. If, of course, we are talking about an active investor. The analysis consists of various indicators, which are used to determine the financial stability and investment attractiveness of the enterprise. You can find many articles about the analysis of companies in this section.
Capital Analysis Key Figures
The analysis of the company's capital is carried out on the basis of absolute and relative indicators. The absolute ones characterize the gain or loss, expressed in natural units - rubles, millions of rubles, etc., and the relative ones show the growth or decrease, expressed in%.
For a complete picture of the company's development, absolute and relative indicators are considered in dynamics over several years. This allows you to trace the stability of development and predict the future dynamics of the company - which, of course, will not necessarily follow the forecast based on its historical data. But still.
In addition to absolute and relative indicators, various coefficients are also calculated to complete the picture:
Information on the capital of the company can be obtained from the consolidated statement of financial position, in the section "Equity and Liabilities". Let's analyze the listed indicators based on the reporting of PJSC Rosseti for 2021. But before calculating the above ratios, let's analyze the overall dynamics of the company's capital.
Dynamics of the company's capital
Dynamics is an absolute indicator reflecting the increase / decrease of the analyzed balance line over time. To calculate from the value of the current period line, subtract the value of the previous year. Data are indicated in million rubles.
Line name 2021 018 Inamika Capital (K) 1,584 1,051 494 96,289 143 Long-term liabilities (DO) 650 464,625 26,725 197 Short-term liabilities (KO) 415 010398 40316 607 Total capital and liabilities (ICO) 2 649 5792 518 632 130 947
In PJSC Rosseti there was an increase in all indicators of liabilities. Capital increased by 89,143 million rubles, subsidiaries by 25,197 million rubles, KO - 16,607 million rubles. The total increase amounted to 130,947 million rubles. The size of equity capital has grown the most, which characterizes the company positively. Nevertheless, the main feature of a business is the ability to generate profits.
For a more detailed study of the company's capital, you can consider the dynamics for each line of the balance sheet separately, and not for the totals. This will make it possible to assess exactly what caused the increase in the total amount of capital.
Enterprise Structure Analysis
What is enterprise capital?
Capital is one of the most important elements shaping the activities of commercial enterprises, and the possibilities for the functioning and development of an enterprise depend on its composition and structure.
The essence of enterprise capital is considered as an economic category from the standpoint of two concepts:
- the essence of capital is considered from the standpoint of material and technical values, i.e. its manifestation in material and physical form;
- the essence of capital is considered from the position of the financial nature of its formation, i.e. capital is personified from the position of financial resources that can be used to organize the activities of the enterprise.
Capital is the total value of property, consisting of non-current and circulating assets, which were originally formed at the expense of financial resources when the enterprise was created, and in the process of carrying out economic activities, they are constantly received and used to update property and to support carrying out the activities of a business entity.
The capital of an enterprise is presented as a significant part of financial resources advanced and invested in production for the purpose of making a profit, includes many types that reveal and characterize it.
Equity capital gives an understanding of how financially stable an economic entity is, how competently the organization is managed, and the structure of equity capital is a factor that has a direct impact on the financial condition of the organization - its long-term solvency, income, profitability of the activity, as well as its economic and financial security.
The total amount of the company's equity capital, which covers its retained earnings, authorized, additional, reserve and other types of capital, is a dynamic value and changes under the influence of various internal production (production volumes, production costs, etc.) .) and external (demand and market prices for the company's products, tax policy of the state, etc.) factors, despite the fact that equity capital is the main source of the formation and increase in the volume of the company's assets, its changes should not be spontaneous, but should be clearly regulated in the process of systemic management of the enterprise.
Debt capital should be understood as cash or other assets that are attracted by the enterprise on a long-term or short-term basis to cover its own needs.
Capital structure of the company: Classification of funding sources # (January)
Capital structure is the composition of long-term liabilities, specific short-term liabilities such as banknotes, common shares and preferred shares, which constitute the funds used by a commercial firm for its operations and growth. The capital structure of a business firm is, in fact, the right side of its balance sheet.
The capital structure generally consists of a firm's debt and equity. Management and stakeholder considerations are considerations as to what combination of debt and equity should be used.
Should we use more debt financing to generate higher returns? Should more equity financing be used to avoid the risk of debt and bankruptcy?
For example, the capital structure of XYZ, Inc. accounts for 40% of long-term debt (bonds), 10% of preferred shares and 50% of ordinary shares.
What is capital?
Small business capital is just money. This is financing for small businesses or money used to operate and buy assets. The cost of capital is the cost of getting that money or financing for a small business. The cost of capital is also called the barrier rate.
Should small businesses even worry about their cost of capital? The answer to that is absolutely yes. Even very small businesses need money to operate, and the money will be worth something. Companies want the cost to be as low as possible.
Capital is money that uses money to finance its activities. The cost of capital is simply the rent or interest rate that it costs a business to get financing.
To understand the cost of capital, you must first understand the concept of capital. The capital for very small businesses can simply be the supplier's credit on which they rely. For large businesses, capital can be supplier credit and long-term debt, or liabilities that are the firm's obligations.
If the company is public or attracts investors, then the capital will also include equity or common stock.
Other equity accounts will be retained earnings, paid-in capital, possibly preferred shares.
Capital is the foundation of any business. There are many approaches to how its structure should be formed and adjusted. The choice of a particular methodology is determined based on a variety of factors. However, in all cases, the task of managers and business owners is to optimize the capital structure and adapt it to ensure the highest level of business profitability. What methods can be involved in this? How to determine the optimal capital structure of a firm?
The essence of capital structure
What is the capital structure of an enterprise? This term most often refers to the ratio between the sources of funds (this can be both the organization's own capital and borrowed capital) that are involved in business activities. In some cases, short-term loans may be excluded from the capital structure of an enterprise. Thus, it will contain sources that are used for the purpose of long-term financing of business activities. The exception is short-term loans, which are issued on a regular basis. They can also include the capital structure of the enterprise. Own and credit funds, first of all, differ in the level of required profitability.
Sources of capital structure
There are usually 3 main types of sources in the capital structure of an organization - borrowed funds, securities-based assets, and retained earnings.
Regarding the first element, its structure is most often formed by loans and bonds issued by an enterprise. In this case, interest paid on both types of loans, as a rule, is included in the cost of production. Securities can be represented by shares of various types - for example, common and preferred. Retained earnings, through which the formation of the capital structure of an enterprise can also be carried out, presupposes subsequent reinvestment in certain areas of production.
Capital structure factors
Let us now consider the main factors that can influence the formation of the capital structure. Modern researchers distinguish the following list of them:
- industry specific features of the segment of business activities of the enterprise;
- characteristics of the organization's life cycle;
- market conditions;
- profitability of the business model;
- tax burden;
- preferences of managers and owners.
Regarding the first component - the sectoral characteristics of the business segment in which the company operates, it should be noted that the structure of the enterprise's capital in this case may depend on the resource intensity of production, the company's need for frequent borrowing, or vice versa , expressed financial autonomy, characteristics of production operations.
Regarding the life cycle of a company, growing firms are characterized by a more noticeable share of borrowed capital, while in mature organizations, own funds often prevail.
Market conditions are another important factor affecting how an enterprise's capital structure can be structured. If the environment for carrying out business activities is favorable, then firms, as a rule, are more active in turning to borrowed funds, and lenders are more willing to issue them. In turn, with negative market factors, it becomes more difficult to obtain loans. In this case, the company's capital structure will be dominated by its own funds.
Economic essence and classification of enterprise capital
The capital of an enterprise is classified according to the following main features (Table 9.):
Classification of the capital of the enterprise Classification attribute Classification groups I. By sources of attraction 1. By title of ownership of the generated capital Equity capital Debt capital 2. By groups of sources of capital attraction in relation to the enterprise Capital attracted from internal sources Capital attracted from external sources 3. By nationality of owners of capital, providing it for economic use National (domestic) capital Foreign capital 4. By forms of ownership of the capital provided to the enterprise Private capital State capital II. By forms of attraction 1. By organizational and legal forms of raising capital by the enterprise Share capital Share capital Individual capital 2. By natural-material form of raising capital Capital in cash Capital in financial form Capital in tangible form Capital in intangible form 3. By the time period of raising capital Long-term (permanent) capital Short-term capital III. By the nature of use 1. By the degree of involvement in the economic process Capital used in the economic process Capital not used in the economic process 2. By spheres of use in the economy Capital used in the real sector of the economy Capital used in the financial sector of the economy 3. By directions of use in economic activity Capital used as an investment resource Capital used as a production resource Capital used as a credit resource 4. By specifics of use in the investment process Initially invested capital Reinvested capital Disinvestable capital 5. By peculiarities of use in the production process Fixed capital Working capital 6. By the degree of involvement in the production process Working capital Non-working capital 7. By the level of risk of use Risk-free capital Low-risk capital Average-risk capital High-risk capital 8. According to compliance with legal norms of useLegal capital "Shadow" capital
Let us consider in more detail certain types of capital, attracted and used by the enterprise, in accordance with its given classification according to the main features.
According to the title of ownership, the capital formed by the enterprise is divided into two main types - equity and debt. In the system of sources of attracting capital, such a division is of a decisive nature.
• Equity capital characterizes the total value of the enterprise's funds owned by it and used by it to form a certain part of its assets. This part of assets, formed from the equity capital invested in them, represents the net assets of the enterprise.
• Debt capital characterizes funds or other property values attracted to finance the development of an enterprise on a repayable basis. All forms of debt capital used by an enterprise are financial liabilities that are repayable within a specified time frame.
According to the groups of sources of capital attraction in relation to the enterprise, the following types are distinguished - capital attracted from internal sources, and capital attracted from external sources.
• Capital raised from internal sources characterizes own and borrowed funds generated directly at the enterprise to ensure its development. The capitalized part of the company's net profit ("retained earnings") forms the basis of its own financial resources, formed from internal sources. The basis of borrowed funds, formed within the enterprise, are current settlement obligations ("internal accrual accounts").
• Capital attracted from external sources characterizes that part of it that is formed outside the enterprise. It covers both equity and debt capital attracted from outside. The composition of the sources of this group of capital formation is quite numerous and will be discussed in detail in the relevant sections.
According to the nationality of the owners of capital that provides it for economic use, there is a distinction between national (domestic) and foreign capital invested in an enterprise.