Self-financing of the company - Investment management

Self-financing of the company

Self-financing of the company is provided by own (internal) sources. Own means are the most reliable sources of financing of capital investments, as they ensure the financial stability of enterprises. While using them, the risk of bankruptcy is reduced, however, for the accumulation of own funds, considerable time is required, long-term funds are withdrawn from circulation, especially at the initial stage of design and construction, which leads to a decrease in the return on equity.

Profit as a source of financing of capital investments is the most mobile and depends on the results of the production and financial activity of the enterprise, i.e. all activities that promote the development and improvement of production, the production of competitive products, lead to an increase in profits and, accordingly, to an increase in investment activity.

The size of the profit directed on financing of capital investments, depends on the total volume of the received profit, the operating order of the taxation and a policy of distribution of profit on consumption and accumulation. Due to the profit used for the accumulation, the production

and scientific and technical development, the formation of assets - the purchase of securities, contributions to the authorized capital of other enterprises, etc.

Depreciation charges. The need to compensate for depreciation of fixed capital is due to the need for continuous continuation of the economic cycle. For compensation of fixed assets, retired due to physical or moral depreciation, an amortization fund will be created at enterprises. And its role is not limited to financing only simple reproduction of fixed assets. Since depreciation charges are accumulated gradually, and spent for the restoration of fixed assets at a time after the expiration of their service life, the accrued depreciation until the replacement of the retired fixed assets is temporarily free and serves as an additional source of expanded reproduction.

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Depreciation charges represent the most stable source of financing of capital investments. The amount of depreciation used to finance capital investments depends on the following factors:

- the book value of the main production assets;

- the terms of their service;

- depreciation methods;

- the company's depreciation policy.

In accordance with the Regulations on Accounting "Accounting for Fixed Assets" PBU 6/01, there are four main ways of calculating depreciation for accounting for fixed assets:

is a linear method;

- non-linear method (method of decreasing residue);

- a method of writing off the value of the sum of the years of useful life;

- the way of writing off the cost in proportion to the volume of products (works).

Note that when calculating depreciation in tax accounting, only the first two methods are used.

With linear method , the annual amount of depreciation is determined based on the initial cost or current (replacement) value (in case of revaluation) of the item of fixed assets and the depreciation rate calculated on the basis of from the useful life of this object:

where A - the annual amount of depreciation; With first - the initial cost of the object; N A - the rate of depreciation.

With non-linear method (the method of decreasing balance), the annual amount of depreciation is determined based on the depreciated value of the item of fixed assets at the beginning of the reporting year and the depreciation rate calculated on the basis of the useful life use of this object and a factor not higher than 3, established by the organization:

where C ost - the residual value of the object; to is the acceleration factor.

With the method of writing off the value by the sum of the numbers of years of useful life the annual amount of depreciation is determined based on the initial value of the item of fixed assets and the annual ratio, where in the numerator the number of years remaining until the end of the service life of the object, and in the denominator - the sum of the number of years of service life of the object:

where Г ост - the number of years remaining before the end of the useful life; T - The useful life.

With the method of writing off the cost in proportion to the volume of production (work), the depreciation deductions are made on the basis of the natural indicator of the volume of products (works) in the reporting period and the ratio of the initial value of the item of fixed assets and the estimated volume of products (works) for the entire useful life of the fixed asset:

where A - the amount of depreciation per unit of output; C - the initial value of the item of fixed assets; P - the estimated volume of production.

The advantage of this source is that it is formed at any financial position of the enterprise and always remains at its disposal.

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In today's realities of the United States economy, less than half of investments in fixed assets are financed from own sources (retained earnings and depreciation charges).

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