Financial resources of the organization
The activities of economic entities should be provided with a set of resources, the most important of which are financial resources.
Financial resources are funds of funds generated from economic entities and designed to finance their current and capital needs.
Sources of financial resources of the organization can be divided into two groups: own and borrowed, with certain advantages and disadvantages. The volume of necessary financial resources is determined by the scope and scope of the organization, the availability of investment resources, financial performance, etc.
Own capital is the most important characteristic of the state of any organization, at the expense of its own funds, current and investment activities are financed, and the assets of the organization are formed. Own capital (invested capital and accumulated profit) includes:
• Authorized capital;
• additional capital;
• Reserve capital;
• Fund of social sphere;
• Targeted financing and income;
• Undistributed profit of previous years;
• Uncovered loss of past years;
• Undistributed profit of the reporting year;
• uncovered loss of the reporting year.
Consider some of these in more detail.
The authorized capital ( shareholders equity, ), formed at the establishment of joint-stock societies, is divided into a certain number of shares. Depending on the organizational and legal form, other names are also used:
• Warehouse capital created in partnerships and non-public companies;
• statutory fund, formed in state and municipal unitary enterprises;
• unit fund, formed in production cooperatives.
At the same time for certain enterprises and organizations, the controlling bodies regulate the minimum amount of the authorized capital (for example, for commercial banks, insurance companies, pension funds, public companies). Each shareholder bears the risk of losses of the joint-stock company within the limits of its shares.
The value of the authorized capital corresponds to the amount fixed in the constituent documents, and is unchanged. The increase or decrease of the authorized capital may be made in accordance with the established procedure (for example, by decision of the general meeting) only after the re-registration of the economic entity. As contributions to the authorized capital may be made: buildings, structures, equipment, other tangible assets, securities, land use rights, water and other natural resources, buildings, facilities, equipment, other property rights (including intellectual property: know-how, the right to use inventions, etc.), cash in rubles and currency. The value of deposits is estimated in rubles by joint decision of participants of economic entities and makes up their shares in the authorized capital.
Additional capital ( additional paid-in capital, capital surplus ) characterizes the joint ownership of all owners of the organization arises as a result of a revaluation of the value of the property), ie, by revealing the total value of all owners, it is not allocated to the shares of each of them. Additional capital includes share premium, as well as income arising from the revaluation of property and as a result of gratuitous receipt of property. Additional capital by decision of owners can be used to cover losses, distributed among owners.
Reserve capital ( reserve capital ) is created by business entities in case of termination of their activities to cover accounts payable. The reserves of the organization are subdivided into those established by the regulatory bodies (normative and regulatory) and voluntary. The formation of reserve capital is mandatory for joint-stock companies, cooperatives, organizations with foreign investments, agricultural organizations. Provisions include provisions for current and future losses and reserves (estimated reserves, provisions for doubtful debts), reserves of income, reserves of capital, etc. Deductions to reserve capital and other similar purposes are made before the size of these capitals established by the constituent documents , but not more than 25% of the authorized capital, and for the joint-stock company - not less than 10%. The reserve capital can be used to cover losses, buy back shares, pay dividends in the absence of net profit.
Organizations (enterprises) also form an accumulation fund and a consumption fund.
The accumulation fund is a source of funds of an economic entity that accumulates profit and other sources for creating new assets, acquiring fixed assets, working capital, etc. The accumulation fund shows an increase in the property status of the economic entity, an increase in its own funds. At the same time, transactions involving the acquisition and creation of new assets of an economic entity do not affect the accumulation fund.
The consumption fund is a source of funds of an economic entity reserved for social development activities (except for capital investments) and material encouragement of the collective.
Net profit of the reporting year ( net income ) - the profit received after payment of all taxes and deductions.
Retained earnings ( retained earnings, reserves and profit brought forward ) - profits not used for the reporting period for the payment of dividends and the formation of reserves (capitalized profits).
Borrowed funds include:
• Funds raised in the financial market: bank loans and loans, loans from other financial institutions, funds raised through bond issues, etc.
• funds coming in the order of redistribution: funds of higher organizations, budgetary system funds in the form of subsidies or subventions, insurance payments made by insurers in the implementation of risks, etc.
Each type of source has certain advantages and disadvantages (Table 13.2), which are taken into account in the process of formation of aggregate financial resources.
The advantages and disadvantages of an organization's own and borrowed capital
Source of funding
Can be used for any purpose.
Does not increase the organization's debts, i.e. they do not need to be returned to anyone.
In some cases, does not require payment for use (profit, depreciation, ordinary shares).
Individual elements can be quickly used (profit)
May lead to a change in ownership structure.
High costs when attracting through the issue of shares.
A long period of raising funds through the issue of shares (sometimes more than one year).
The need to comply with the requirements of regulators when attracted through the issue of shares
Stimulates entrepreneurial activity, as the profitability of business should be higher than the price of borrowed capital.
Interest for use is included in the organization's total costs.
Does not change the ownership structure.
Short term of attraction (for loans 2-4 weeks)
Subject to mandatory return with interest on time.
You can control the targeted use of the funds received (loans).
In some cases, collateral is required (collateral for lending)
The choice of funding sources depends on a combination of factors: the cost of attracting, the level of development of the country's financial and banking system, the organizational and legal form of the company, the stage of the life cycle of the industry and organization, the level of risks, the size and scale of the organization's activities, the type of activity, the macroeconomic situation; the level of market prices for resources (material, labor), management mentality, etc.
The choice of funding sources largely determines the financial strategy (self-financing, debt financing, mixed financing), formed and implemented by the organization, which is the concept of attracting and effective use of various sources of financing.
The algorithm for developing a financial strategy includes:
1) analysis of the state of the market, competitors, the possibility of changing macroeconomic indicators;
2) Identify the strengths and weaknesses of your own business;
3) assessment of the potential (personnel, technology, financial, etc.) of the company;
4) determining the need for short- and long-term financing;
5) to achieve the optimal structure of funding sources and to assess the direction of their investments.
The financial resources of the organization are:
• to cover current costs associated with the production and sale of products, the performance of work, the provision of services;
• investing in capital investments needed to expand production, change the structure of assets;
• Investing in securities of the state and other organizations;
• the implementation of tax payments and deductions, repayment of interest and amounts of loans received, contributions to extrabudgetary funds;
• the formation of various monetary funds and reserves (reserve, accumulation, social development);
• transfers to charity, sponsorship, etc.