The amount of equity capital you can easily determine the balance. It includes authorized, incremental and reserve capital and retained earnings and funds a special purpose. All these values you will find in the third section of the balance sheet "Capital and reserves".
Let us consider the formation of each article in this section. Authorized capital (line 410 of the balance sheet) represents the amount invested by the shareholders in the company. It is stipulated in the constituent documents of the organization. To change the authorised capital may only after a corresponding entry in the founding documents. To equity should include a line 411 "Own shares redeemed at shareholders" if the organization bought back from shareholders securities.
Added capital (line 420) is part of enterprise's equity capital, which includes amounts contributed by the founders in excess of the authorised capital. Remember that the additional capital can impact the amount of share premium of joint stock companies, the amount of the revaluation of non-current assets of the organization, and part of the undistributed profits remaining at its disposal.
Reserve capital (line 430) is part of the equity that is allocated from the profits of the enterprise to cover potential losses. Note that the capital reserve is divided into reserves formed in accordance with the legislation (line 431) and the reserves formed in compliance with constituent documents (line 432).
Remember that the main source of the accumulation of property of the enterprise is retained profit (line 470). It is equal to the difference between the financial result for the reporting period and the amount of taxes and other payments made from profit. It also includes the remains of the special purpose funds created in the organization which are not shown in the balance sheet as a separate line.
Advice 2: How to determine the equity of the enterprise
To determine the ability of the organization to self-financing, it is possible to do without borrowing, we need to evaluate the composition and structure of own capital. Such analysis is carried out on the basis of data of the accounting reporting of the enterprise.
You will need
- Accounting balance sheet (form №1)
In the capital are:- investments – capital, representing the contributions of the participants;- the accumulated capital created by results of financial-economic activity of the enterprise – retained earnings or accumulated losses;- the additional capital is formed due to the revaluation of assets.
Balance each of the components of the structure of own capital represented by the relevant rows of the section "Capital and reserves". In particular, to determine the amount of the share capital at line 1310, additional paid-in capital – 1350, and undistributed profit (uncovered loss) – 1370.
But by themselves, these figures do not reflect the financial condition of the enterprise. It is more important to consider their share in the balance sheet and impact on the formation of current assets.
Regularly monitor the ratio of own capital in turnover in the organization. Calculate it by the formula: RMSE = (p. 1300-1100 p.) (form No. 1 balance).A positive value, the growth or stability of the index indicate financial stability of the enterprise, while a negative number suggests that the bulk of current assets formed at the expense of borrowed funds. Reducing the share of own capital in currency of balance and working capital over time can lead to impossibility of performance of obligations to partners and eventually to bankruptcy.
In addition, consider the share of own capital in their own working capital, which characterizes the ratio of own and borrowed sources of financing of the company. It represents the ratio of own funds in circulation to the value of current assets and is calculated according to the formula:Xxos = (p. 1300-1100 p.)/ p. 1200).
The availability of private capital also determines the ratio of financial independence or autonomy, that is, the security assets of the organization own sources of formation. The index of financial independence is calculated as private from division of cost of own capital on total assets:FSC = 1300 PG/(PG 1100+p. 1200).
Analyzing their own capital, pay attention to the growth rate - coefficient of safety. For its calculation we use the formula:Kssk = W1/СК0х100%, where W1 – the value of own capital at the end of the reporting period, and SC0 – at the beginning.The growth rate of private capital should be more than 100%, exceeding the growth rate of current assets and inflation over the same period. In this case we can talk about the prosperous financial condition of the enterprise.