Formation of capital as the main task of investment...

Capital formation as the main investment objective

After studying the materials in this chapter, the student must:

know

• the definition, content of capital and the term "capital cost";

• what are the purposes for which the cost (price) of capital is used;

• the main factors that determine the structure and cost of capital;

• advantages of using the company's borrowed capital and the disadvantages of excessive attraction;

• classification of the fixed capital of the enterprise;

• classification of current assets of the enterprise;

• the concept of working capital management of the enterprise;

• differences between fixed and variable working capital;

• what factors have the greatest impact on the structure of current assets;

• what factors lead to the loss of the company's current assets;

be able to

use positive aspects of the use of equity in the enterprise;

• characterize the signs of classification and the purpose of capital formation of the enterprise;

• formulate the role of fixed and working capital in the activities of the enterprise (corporation)

• justify the differences between non-current assets and fixed assets (fixed assets) of the enterprise;

• set out the methodology for calculating the weighted average and marginal cost (price) of capital;

own

arguments for the formation of the optimal structure of the enterprise's capital;

• an information base for applying the methodology for calculating the weighted average and marginal cost (price) of a company's capital;

• Theoretical knowledge for using the basic models to optimize the capital structure.

The economic nature of capital

Capital is one of the most important concepts of financial management.

From a position of financial management , capital is the total value of funds in monetary, material and non-material forms that have a monetary value invested in the assets of the enterprise.

From the point of view of corporate finance, capital is a monetary (financial) relationship that arises between organizations and other business entities about the formation and use of capital.

As a result of investing money resources, fixed and working capital is formed. In the process of functioning, fixed capital takes the form of non-current assets, and working capital is a form of current assets.

The amount of capital, as well as its structure and composition of sources are not constant. Therefore, in practical activities, it is necessary to carry out constant monitoring of the processes of its formation, replenishment or reduction and movement on certain dates, in the short, medium and long periods.

Depending on the objectives of production or financial activities, the development of the enterprise, the interests of the owner, the size and structure of the capital can be adjusted. The total amount of capital (which is, as a rule, a significant part of the enterprise's funds) and its structure are reflected in the asset of the enterprise's balance sheet.

From the point of view of finance, capital is a collection of money invested or advanced in the fixed and circulating funds of an enterprise involved in the process of reproduction and yielding profit (surplus capital or surplus value).

Therefore, the main and working capital are synonyms of fixed and circulating funds from the point of view of accounting. These funds are valued by various criteria - commodity, production, material, monetary, etc.

In terms of functionality, capital is divided into fixed and circulating.

Fixed capital - is money invested in a combination of fixed assets, funds and intangible assets, or their valuation. Fixed assets that do not have a specific purpose but are used in the production process also belong to fixed capital. By the degree of participation in production, it is divided into the main production and non-productive capital. Non-productive capital is difficult to separate from non-productive fixed assets - the line is purely conditional.

Funds that do not participate in the production process and do not generate profits are called enterprise assets.

From the point of view of accounting and material composition, the basic production assets and funds are divided into 13 groups (for example, buildings, facilities, production equipment, transfer devices, etc.) and participate in the production process differently. Therefore, a distinction is made between the active and passive parts of the basic production assets. Machines, equipment etc., and to passive - buildings, constructions, land plots and to the active part of the basic production assets and means etc. Non-productive fixed assets and funds can also be divided into active and passive, however, their influence on the production process and profit can not be confirmed by a permanent dependence. Therefore in practice such division does not take place. In addition, the composition of fixed capital in some cases, you can include the amount of costs for construction in progress and the acquisition of fixed assets.

In accounting, the main production assets and funds are divided into active and inactive ones.

Working capital - are cash advances to a set of current assets of an enterprise used or intended for use in production and generating a profit (surplus value or additional capital).

Since circulating funds and funds are involved in the production process at all stages of the circuit (monetary, productive - reserves, production - costs, commodity), then the working capital can be expressed in natural-material form. Working capital is divided into production stages and in circulation by stages of production. In practice, the term "non-productive" is not used, since such means are also commodity-material assets-property.

Current assets and funds include:

• objects of labor (raw materials, basic and auxiliary materials, fuel);

• means of labor (packaging, spare parts, household equipment, tools);

• work in progress (items of labor and means of labor expended on production, but not making finished products);

• Expenses of future periods (funds invested in activities that will be accounted for in product costs in subsequent reporting periods).

Circulating funds and funds in the sphere of circulation consist of:

funds of the enterprise advanced to the finished product;

• funds in the calculations;

• funds held on settlement, foreign currency accounts and in the cash desk of the enterprise.

Since the working capital must simultaneously be in production stocks, in work in progress, in finished goods, in cash at settlement, foreign currency accounts and at the cash desk, etc., the enterprise must simultaneously have both circulating production capital and working capital in sphere of circulation.

The fixed capital is used for a certain long period of time (on average about 10 years). Working capital, passing through all stages of the circuit, is used, in fact, to be fully and completely recovered from the proceeds from the sale of products (works or services). The funds spent (spent) for the acquisition and construction, expansion and reconstruction, are invested in fixed assets. The money spent for the acquisition of materials, raw materials, fuel, etc., is advanced to working capital.

Acquisition of components of fixed capital is made from proceeds received over a long period of time and affects the sources of their acquisition (depreciation fund, profit, share capital, etc., ie own sources of funds). The value of funds advanced to working capital is recovered from the proceeds in a relatively short period of time and does not affect the sources of their acquisition.

All sources of formation and changes in the company's capital are reflected in the balance sheet liability. By sources of cash, capital is divided into:

• Own capital;

• attracted capital;

• loan capital.

Equity represents cash held by the owner of an enterprise as a property and invested in a combination of funds involved in the production process and yielding a profit or surplus product in any form.

In the course of economic activity, the owner of the enterprise has the right to attract additional funds on any terms:

• citizens, including foreign citizens;

• other enterprises and organizations;

• State.

These funds are attracted both on the irrevocable and on a return basis, with the transfer of part of the profit to the owner of the funds raised. Such funds are called attracted capital.

Loan capital - is money borrowed in the credit and banking sector on terms of repayment and with the payment of the relevant interest under the contracts. Borrowing can be short-term and long-term , depending on the period of its use in the enterprise and the repayment period with interest.

The form of investment is divided into entrepreneurial and loan capital.

Entrepreneurial capital is invested and advanced to the real (capital), intangible and financial assets of the enterprise (corporation) for profit and management purposes.

Loan capital - it is cash provided on credit on terms of repayment, payment, urgency and collateral. Unlike entrepreneurial, loan capital is not invested in any enterprise, but is transferred by a lender (commercial bank) to the borrower for temporary use in order to receive interest. Loan capital acts on the credit market as a commodity, and its price is a percentage.

The price of capital expresses how much you have to pay (to give money) for attracting a certain amount of capital.

Price of equity - the amount of dividends on shares for equity capital or the amount of profit paid on unit deposits and related costs.

The price of borrowed capital - the amount of interest paid for a loan or a bond loan and related costs.

The price of the raised capital is a cost of accounts payable. It is the amount of penalties for accounts payable that is not repaid more than three months after the occurrence or in the period specified in the contract (contract).

An important indicator of the efficiency of the enterprise's production and commercial activities is the capital dynamics. The ability of equity to self-growth characterizes the acceptable level of education of net (undistributed) profits of the enterprise, its ability to maintain financial equilibrium from its own sources. The decrease in the share of equity in its total volume indicates a loss of financial independence of the enterprise and an increase in the role of external sources (borrowed and attracted funds).

Capital is classified by various characteristics.

By ownership, allocate own, borrowed and attracted capital.

For purposes of use, there are production, loan and speculative capital. The latter occurs on the secondary stock market due to artificial overstatement of the value of outstanding shares.

The forms of investment distinguish capital in the monetary, material and non-material forms used to form the authorized (share) capital of business partnerships and societies. In accounting, he receives a specific valuation.

For investment objects, there are basic and revolving capital.

The forms of ownership are allocated state, private and mixed capital.

The organizational and legal forms of activity distinguish joint stock, unit (stock) and individual capital of households.

By the nature of participation in the production process, capital is divided into functioning and non-functioning (fixed assets that are in reserve, repair and conservation).

By the nature of use by the owners (owners) allocate consumed and accumulated (reinvested) capital. The latter can be attributed to the retained earnings of the reporting year and past years.

According to sources of attracting capital can be divided into United States (domestic) and foreign capital.

In practice, there are other classifications of capital - legal and "shadow" capital , etc.

The functioning of capital in the process of its productive use is characterized by the process of individual circulation within the framework of an individual enterprise (corporation), which is carried out according to the formula

D-T-D ',

where D - funds invested or advanced by the investor; T - goods (instruments and objects of labor acquired by the investor); D '- money received by the investor from the sale of the finished goods, including the funds of reimbursement funds, labor and profit; D '- D - the net income of the investor in the form of cash assets included in the profit; D '- T - proceeds from the sale of goods; D - T - costs of the investor for the purchase of goods.

The average duration of turnover of capital is expressed by the turnover ratio and the duration of one turnover in days or months for the settlement period:

where KOK - coefficient of turnover of capital, the number of turns; BP - proceeds from the sale of goods (net); K is the average cost of capital for the settlement period; Under - the duration of one turn, in days; 365 - number of days (90 days per quarter, 180 days per half-year).

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