Equity capital of the bank and methods of its formation. International Student Scientific Bulletin Debt Management Analysis Journal article

1

In an economic downturn, capital formation strategies are important credit institution. At the same time, the bank's capital plays a significant role in ensuring the stability and reliability of the banking system, while the efficiency of the banking system is a decisive factor in economic growth, raising the standard of living and welfare of society. This article analyzes equity and ways to replenish it using the example of PJSC ROSBANK, as one of the most stable banks in Russia. As a result of the study, the main trends in the formation of its resource base by the Bank were identified and external and internal factors, which have a key influence on the formation of own funds of a commercial bank.

bank capital

own funds

commercial banks

resource structure

bank capital formation

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2. Danilovskikh T.E., Makovskaya T.V. Capital adequacy of commercial banks in the context of the transition to the Basel-III recommendations: a regional aspect // Fundamental research. - 2014. - No. 8–3. - S. 662-670.

3. Kireev V.L. Banking: textbook / V.L. Kireev, O.L. Kozlov. – M.: KNORUS, 2012. – 240 p.

4. Lantukh A.V., Kuzmicheva I.A. Liquidity risk of commercial banks of the Russian Federation // International Journal of Applied and Fundamental Research. - 2015. - No. 3–1. – P. 63–67.

5. Makovskaya T.V., Danilovskikh T.E. Equity commercial bank and the problems of its formation on the example of JSCB "PRIMORYE" (Vladivostok): Modern tendencies in economics and management: a new look. - 2014. - No. 25. - P. 104–108.

6. Manuylenko V.V. Formation of the qualitative structure of the bank's own capital / V.V. Manuylenko // Banking. - 2012. - No. 12. - P. 49–54.

In the course of its activities, any organization is subject to different kind risks and one of the first is the risk of losing invested funds. The Bank equally risks both its own and borrowed funds. But it is worth noting that in the event of unfavorable conditions, the damage is primarily covered by equity, and only if there is not enough equity, creditors begin to bear the losses. Thus, capital acts as a protective mechanism to minimize the risk of losing creditors' funds. But nevertheless, the growth of the share of capital in the total amount of the bank's funds in most cases means a reduction in profits, which is undoubtedly an unfavorable factor.

It should be noted that in addition to the main protective function, the bank's own capital also performs operational and regulatory functions.

Operational function provides financial basis bank activities. The bank's equity in this function provides an adequate base for the growth of active operations, i.e. maintains the volume and nature of banking operations in accordance with the tasks of the bank.

The regulatory function is associated solely with the special interest of society in the successful functioning of banks, as well as with laws and regulations that allow central banks to exercise control over the activities of commercial banks and other lending institutions.

In general, the bank's own capital is the financial basis for its development. Compared to other areas of business activity, the bank's equity capital takes up a small specific gravity in total capital, which is associated with the specifics of the activities of commercial banks. As mentioned earlier, equity plays the role of a protective mechanism, but not all elements of equity have the same protective properties. Many of these have specific features that affect the item's ability to recover extraordinary contingencies. In this regard, two levels are distinguished in the structure of equity:

1) the main (basic) capital - the capital of the first level

2) additional capital - capital of the second level.

Fixed capital represents the funds that the bank can freely use to cover possible unexpected losses. Elements of basic capital are reflected in the reports published by the bank, form the basis on which many assessments of the quality of the bank's performance are based, and, finally, affect its profitability and degree of competitiveness.

The capital of the second level consists of hidden reserves, which are less permanent and can only under limited conditions be used for the above purposes. The cost of such funds is capable of changing over time.

The sources of the bank's fixed capital include:

1) the authorized capital of the bank in the legal form of a joint-stock company, formed as a result of the issue and placement of ordinary shares, as well as preferred shares that are not cumulative;

2) the authorized capital of the bank in the organizational and legal form of the company with limited liability formed by paying shares by the founders;

3) share premium of banks;

4) funds of banks (reserve and other funds) formed from the profits of previous years. remaining at the disposal of banks and confirmed by an audit organization;

5) profit of the current year and previous years in the part confirmed by the auditor's report.

To the sources additional capital include:

1) increase in the value of property due to revaluation;

2) funds formed at the expense of deductions from the profit of the current and previous year before confirmation by an audit organization;

3) profit of the current year, not confirmed by an audit organization;

4) profit of previous years before audit confirmation before July 1 of the year following the reporting one (in the absence of such confirmation, profit after the specified date is not included in the calculation of equity);

5) subordinated loan;

6) part authorized capital formed at the expense of capitalization of the increase in the value of property during revaluation.

For clarity, consider the equity structure of PJSC ROSBANK, presented in Table. one.

Managing the ratio between equity and liabilities is an important criterion. Since own funds are non-refundable resources, they act as a reserve to cover the bank's obligations. Within its own funds, the bank guarantees 100% liability for its obligations.

Consider the structure of liabilities of PJSC ROSBANK in Table. 2.

Liabilities are funds placed at the disposal of the bank under certain conditions. In terms of the total volume, the bank's liabilities are several times higher than the capital, which is predetermined by the specifics of banking activities. Comparison of the sums of the totals in Table. 1 and table. 2 confirms the above.

To regulate the banking system and ensure sustainability financial system In general, the Central Bank of the Russian Federation has developed a system of standards that are mandatory for all banks operating in the territory of the Russian Federation. At repeated violation these standards - the bank's license is revoked.

Table 1

Structure of equity capital of PJSC ROSBANK, thousand rubles

Name of indicator
Authorized capital
Extra capital
Retained earnings of previous years (uncovered losses of previous years)
Unused profit (loss) for the reporting period
reserve fund
Sources of own funds

table 2

Structure of liabilities of PJSC ROSBANK, thousand rubles

Name of indicator
Deposits of individuals with a term of more than a year
Other deposits of individuals (including individual entrepreneurs) (up to 1 year)
Deposits and other funds of legal entities (up to 1 year)
including current funds of legal entities (without IP)
Correspondent accounts of LORO banks
Interbank loans received for up to 30 days
Own securities
Interest liabilities, arrears, accounts payable and other debts
Expected cash outflow
Current responsibility

Table 3

Capital adequacy ratios of PJSC ROSBANK

Table 4

Types of sources of replenishment of the bank's own capital

Types of sources of equity	Description of sources
Accumulation	The easiest and least expensive method of replenishing capital, especially for banks whose activities are characterized by a high rate of return. Thus, small banks that are unable to attract investors due to lack of an appropriate reputation rely on this method
Reinvestment
Placement of shares on the Russian stock market	It plays an important role in the formation of the bank's capital. The share price largely depends on the level of dividends paid, i.e. an increase in dividends leads to an increase in the share price. Therefore, high stock returns encourage capital raising through the sale of additional shares.
Dividend politics	It has a significant impact on the possibility of expanding the capital base through domestic sources. A high proportion of profits allocated to capital gains results in lower dividend payouts. Accordingly, high dividends lead to an increase in the market value of the bank's shares, which makes it easier to increase capital from external sources.

One of the important indicators of a bank's reliability is the bank's own funds (capital) adequacy ratios.

From January 1, 2014, Russian banks must calculate three capital adequacy ratios instead of one, as was the case before, due to the introduction of Basel III. In addition to the total capital adequacy ratio (10%), the adequacy of basic capital (5%) and core capital (5.5%, and since 2015 - 6%) appears. According to the Basel Committee, more stringent approaches to calculating capital adequacy and liquidity ratios should reduce the risks of a systemic banking crisis and improve the sector's ability to cope with the consequences of global financial collapses.

Based on the data presented in table. 3, we can conclude that for the period under review, the capital adequacy ratios of PJSC ROSBANK corresponded to the normative values.

For the normal functioning of the bank, much attention is paid to the amount of equity and borrowed capital, risks and its assets.

The equity capital of a commercial bank is the basis of its activities and is an important source of financial resources. It is designed to maintain customer confidence in the bank and convince creditors of its financial stability. The capital must be large enough to ensure the confidence of borrowers that the bank is able to meet their needs for loans even under unfavorable conditions for the economic development of the national economy. This led to increased attention of state and international bodies to the size and structure of the bank's own capital, and the bank's capital adequacy ratio was classified as one of the most important in assessing the bank's reliability. At the same time, equity capital is of paramount importance for ensuring the stability of the bank and the efficiency of its work. The constraining factor of its growth is the need to form reserves for active operations.

The level of required capital should be determined depending on the expected financial losses, the determination of which is difficult due to the lack of statistics. Thus, equity capital is really very important, so let's consider the sources of its replenishment. Types of sources of replenishment of the bank's own capital are presented in Table. 4.

As indicated in Table. 4 sources of capital growth for a bank can be internal (profit) and external (shareholder funds). But it is worth noting that the method of increasing capital at the expense of shareholders is not publicly available, due to the fact that small banks do not have sufficient reputation to attract them. It follows that the sources of capital growth for the main group of Russian banks should be sought within the business, and not outside.

In 2006, there were 1,729 IPOs worldwide worth $247 billion. IPO or initial public offering is the first public sale of shares of a joint-stock company, including in the form of sale of depositary receipts for shares, to an unlimited number of persons. Conducting an IPO allows the bank to gain access to the capital of a much wider range of investors, but in turn requires the cost of placement and payment of dividends.

PJSC ROSBANK did not refuse to conduct an IPO until the last moment. But in the end, the Board of Directors of the Bank decided to increase its authorized capital by placing an additional issue of shares by private subscription. The fact is that if PJSC ROSBANK held an IPO, then the share of the strategic investor Societe Generale (SG) in the bank's capital would be diluted. On the this moment SG owns 99.4% of the shares of PJSC ROSBANK. Cooperation with such a shareholder allowed the Bank to quickly improve its rating and improve access to international market debt capital.

PJSC ROSBANK manages its capital to ensure that all companies of the SG Group continue to operate for the foreseeable future while maximizing returns for shareholders by optimizing the debt/equity ratio.

The capital structure is reviewed by the Management Board of the Group every six months. As part of this assessment, the Board, in particular, analyzes the cost of capital and the risks associated with each class of capital. Based on the recommendations of the Management Board, the Group adjusts its capital structure by paying dividends, issuing additional shares, attracting additional subordinated borrowings or paying off existing loans.

At the moment, PJSC ROSBANK is one of the Russian banks with high capitalization and a sufficient level of liquidity, its indicators comply with all mandatory standards.

Bibliographic link

Ivanova I.V. OWN CAPITAL OF THE BANK AND WAYS OF ITS FORMATION // International Journal of Applied and Fundamental Research. - 2015. - No. 8-3. – P. 537-540;
URL: https://applied-research.ru/ru/article/view?id=7146 (date of access: 03/20/2020). We bring to your attention the journals published by the publishing house "Academy of Natural History" 1

Increasing business efficiency is impossible only within the framework of the enterprises' own resources. To expand their financial capabilities, enterprises resort to attracting additional borrowed funds in order to increase investments in own business, get more profit. The issue of the formation, functioning and reproduction of capital by small businesses, which is not always easy to attract borrowed capital, is relevant. An indicator of the market stability of a company is its ability to successfully develop in the conditions of transformation of external and internal environment. In most cases, small businesses use bank loans as borrowing sources, which is explained by the relatively large financial resources Russian banks, as well as the fact that when obtaining a bank loan, there is no need to publicly disclose information about the enterprise. To do this, it is necessary to have a flexible structure of financial resources and, if necessary, be able to attract borrowed funds. cash, i.e. be creditworthy.

small business

capital Management

lending

Borrowed capital

1. Guseva E. G. Production management at a small enterprise. Educational and practical guide. -M.: MGUESI, 2008. -114p.

2. Kovalev VV Financial analysis: capital management, investment choice, reporting analysis. - M.: Finance and statistics, 2007. –512s.

3. Sheremet A.D., Saifulin R.S. Enterprise finance. Tutorial. – M.: Infra-M, 2007. – 343 p.

4. Financial analysis of the company's activities. – M.: East-service, 2009.

5. Holt Robert N. Fundamentals of financial management. - Per. from English. - M.: Delo, 2010.

At present, in the context of the existence of various forms of ownership in Russia, the study of the formation, functioning and reproduction of capital in small businesses is becoming especially relevant. Opportunities for the formation of entrepreneurial activity and its further development can only be realized if the owner reasonably manages the capital invested in the enterprise.

Increasing business efficiency is impossible only within the framework of the enterprises' own resources. To expand their financial capabilities, it is necessary to attract additional borrowed funds in order to increase investments in their own business, to obtain greater profits. In this regard, managing the attraction and effective use of borrowed funds is one of the essential functions financial management, aimed at ensuring the achievement of high final results economic activity enterprises. This topic is especially acute for newly organized small businesses that do not always have the opportunity to finance themselves.

Borrowed capital used by such enterprises characterizes in aggregate the volume of their financial liabilities. Sources of borrowed capital can be funds raised on the securities market and credit resources. The choice of a source of debt financing and the strategy for attracting it determine the basic principles and mechanisms for organizing the financial flows of an enterprise. The efficiency and flexibility of managing the formation of borrowed capital contribute to the creation of an optimal financial structure of the enterprise's capital.

Currently, the main ways to attract borrowed capital are bank loans, equity financing, leasing. In most cases, small businesses use a bank loan as borrowing sources, which is explained by the relatively large financial resources of Russian banks, as well as the fact that when obtaining a bank loan, there is no need to publicly disclose information about the enterprise. Here, part of the problems caused by the specifics of bank lending is removed, which is associated with simplified requirements for application documents, with relatively short terms consideration of applications for issuing a loan, with flexibility in terms of borrowing and forms of loan collateral, with simplification of the availability of funds, etc.

Majority leaders Russian companies do not want to disclose financial information about their enterprises, as well as to make changes in financial policy. As a consequence - the fact that only 3% of Russian companies use equity financing.

According to a number of modern scholars, the concepts of "capital" and "financial resources" require a distinction in terms of financial management of enterprises. Capital (own funds, net assets) is the organization's property free from obligations, the strategic reserve that creates conditions for its development, absorbs losses if necessary, and is one of the most important pricing factors when it comes to the price of the organization itself. Capital is the highest form of mobilization of financial resources.

The following set of various functions of capital is distinguished:

production resource (factor of production).

Object of ownership and disposal.

Part of financial resources.

Source of income.

Time preference object.

Object of sale and purchase (object of market circulation).

Carrier of the liquidity factor.

The use of borrowed capital to finance the activities of the enterprise, according to many economists, is economically beneficial, since the payment for this source is on average lower than for equity capital. This means that interest on loans and borrowings is less than the return on equity, which characterizes, in fact, the level of cost of equity. In other words, under normal conditions, debt capital is a cheaper source than equity capital.

In addition, the involvement of this source allows owners and top managers to significantly increase the amount of controlled financial resources, i.e. expand the investment opportunities of the enterprise.

There are various forms of borrowing. So, borrowed capital is attracted to service the economic activities of the enterprise in the following main forms (Fig. 1.1):

Fig.1.1 Forms of borrowing.

According to the degree of security of borrowed funds attracted in cash, which serves as a guarantee of their full and timely return, the following types are distinguished (Fig. 1.2.):

Fig.1.2. Types of borrowed funds in cash.

A blank or unsecured loan is a type of loan that is issued, as a rule, to an enterprise that has a good reputation for timely repayment and fulfillment of all conditions of the loan agreement. In financial practice, this category of enterprises is characterized by a special term - "first-class borrower";

Thus, based on the composition of borrowed funds, in financial practice, the main creditors of an enterprise can be:

• commercial banks and other institutions that provide loans in cash (mortgage banks, trust companies, etc.);
• suppliers and buyers of products (commercial credit from suppliers and advance payments from buyers);
• stock market(issue of bonds and other securities other than shares) and other sources.

Another way to attract borrowed funds is to expand the practice of financial leasing. Leasing uses an increasing share every year Russian enterprises. The attractiveness of financial leasing as a form of lending for commercial banks is associated with a lower degree of risk of investing in investments due to the fact that:

• credit resources are directed to the acquisition of the active part of fixed assets - equipment, the actual need for which is confirmed and its use by the lessee organization is guaranteed;
• the lessee organization decides to conclude a contract only if all the necessary conditions for the organization of production are available, including production space, labor, raw materials and supplies, except for equipment.

Thus, capital management is a system of principles and methods for the development and implementation of management decisions related to its optimal formation from various sources, as well as ensuring its effective use in various types of business activities of the enterprise.

It is also possible to summarize the direction of attracting capital, namely the solution of the following tasks:

• Formation of a sufficient amount of capital to ensure the necessary pace of economic development of the enterprise.
• Optimization of the distribution of formed capital by types of activity and areas of use.
• Ensuring the conditions for achieving the maximum return on capital with the expected level of financial risk.
• Ensuring the constant financial balance of the enterprise in the process of its development.
• Ensuring a sufficient level of financial control over the enterprise by its founders.
• Ensuring timely reinvestment of capital.

The formation of an enterprise's borrowed capital should be based on the principles and methods for developing and implementing decisions that regulate the process of attracting borrowed funds, as well as determining the most rational source of financing borrowed capital in accordance with the needs and opportunities for the development of the enterprise. The main objects of management in the formation of borrowed capital are its price and structure, which is determined in accordance with external conditions.

In the structure of borrowed capital, there are sources that require their coverage to attract them. The quality of coverage is determined by its market value, the degree of liquidity or the possibility of compensation for borrowed funds.

Analyzing bank lending, we found out that one of the main problems is the reluctance of banks to issue money to finance new enterprises that do not have a credit history. But it is during this period that borrowed capital is especially important for such enterprises. In addition, the problem of high rates for new businesses is also intractable.

In other cases, attracting a bank loan is one of the most popular ways to finance an enterprise. The main feature of bank lending is a simplified procedure (with the exception of syndicated bank loans and loans in relatively large volumes).

The correct application of the above recommendations allows enterprises to increase profitability by increasing production volumes and product sales. The need to attract external sources of financing is not always associated with the insufficiency of internal sources of financing. These sources, as you know, are retained earnings and depreciation. The considered sources of self-financing are not stable, limited by the speed of cash turnover, the rate of product sales, and the amount of current expenses. Therefore, free money is often (if not always) not enough, and an additional injection of it, aimed at increasing asset turnover, will be extremely useful for most enterprises.

Bibliographic link

Kravtsova V.A. POLICY OF LOAN CAPITAL ATTRACTION BY SMALL BUSINESS ENTERPRISES. // International Student Scientific Bulletin. - 2015. - No. 1.;
URL: http://eduherald.ru/ru/article/view?id=11974 (date of access: 03/20/2020). We bring to your attention the journals published by the publishing house "Academy of Natural History"

…………………………………………………………..………..….4
Chapter 1
1.1. The economic essence and types of capital of the organization…………….6
1.2. The main sources of debt capital formation, their composition………………………………………………………………………….16
1.3. The policy of the organization in terms of the formation (attraction) of borrowed capital………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
1.4. The main stages in the development and implementation of management policy borrowed capital………………………………………………………..27
Chapter 2
2.1. Methods and techniques of debt capital management………….….33
2.2. Cost of capital, incl. cost of borrowed capital sources………………………………………………………………………37
2.3. Estimating the cost of sources of short-term financing…44
CHAPTER 3. ANALYSIS OF PROBLEMS AND PROSPECTS OF GROWTH OF THE EFFICIENCY OF MANAGEMENT OF LOAN CAPITAL OF THE ORGANIZATION, ON THE EXAMPLE OF PROTEKS LLC…………………………….54
3.1. Characteristics, assessment of the property and financial condition of Protex LLC according to financial statements…………………54
3.2. Features of debt capital management in Protex LLC…67
3.3. Advantages and Disadvantages of the Loan Capital Management System Established in Protex LLC…………………………………..72
3.4. Recommendations for improving the policy of managing borrowed capital in Protex LLC………………………………….….73
………………………………………………………………….84
LIST OF USED LITERATURE……………………….…………….88
APPENDICES…………………………………………………………………….92

Introduction

The relevance of the research topic is justified by the fact that the management of the enterprise must clearly understand from what sources of resources it will carry out its activities and in what areas of activity it will invest its capital. At present, the analysis of the formation and use of borrowed capital in organizations is particularly relevant, since the analytical services of organizations develop and apply analysis methods to determine the financial and economic situation. An analysis of the process of formation and use of borrowed capital reveals to interested users the whole range of advantages and problems that exist in the enterprise. This is justified by the fact that the formation and use of borrowed capital has a significant impact on the efficiency of the organization and is one of the key aspects in the implementation of long-term costly investments. An analysis of the debt capital management system will provide users with up-to-date information about the amount of the organization's borrowed capital, the optimality of its structure, and the feasibility of using it. Thus, the relevance of studying the management of borrowed capital of an enterprise is justified by the fact that the data obtained as a result of the analysis will help in making certain management decisions aimed at improving and rationalizing the structure of borrowed capital, minimizing the impact of negative factors, profit growth, effective and fruitful management of the borrowed capital of the organization.
The relevance of the problem posed in the work allows us to determine the object, subject, purpose and objectives of the study.
Objective- study of the effectiveness of the organization's borrowed capital management, using the example of Protex LLC.
Work tasks:
- to consider the theoretical foundations of the organization's borrowed capital management;
- to study the methodological foundations of the organization's borrowed capital management;
– to assess the effectiveness of the organization's borrowed capital management, using the example of Protex LLC;
— to develop recommendations for improving the policy of managing borrowed capital in the organization under study.
The object of the study is Protex LLC.
The subject of the research is the effectiveness of the management of borrowed capital in Protex LLC.
When working on the problem posed, both general scientific methods of analysis and synthesis, comparison, and methods financial analysis.
The degree of development of the problem. Much has been devoted to the study of the theoretical and methodological foundations of analysis and management of the borrowed capital of an enterprise. scientific works, teaching aids, monographs and publications. In this work, we most actively used the following works when working on the problem posed: I.V. Afanasiev, S.L. Zhukovskaya, M.S. Oborina, V.A. Kravtsova, E.R. Mukhina, O.V. Pachkova, A.I. Romashova, R.Yu. Sarycheva, V.B. Frolova and others. In general, set in term paper the problem is sufficiently developed in the scientific literature.
The practical significance lies in the conclusions and proposals made on the basis of the results of the evaluation of the dynamics, structure and efficiency of the management of borrowed capital in Protex LLC. The developed recommendations are aimed at improving the policy of managing borrowed capital in the organization under study.
The work consists of an introduction, 3 chapters (theoretical, methodological and practical), conclusion, list of references and applications.

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44. Shulyak P.N. Enterprise Finance - M.: Finance and Statistics, 2015. - 648 p.

Overall volume: 92

The main components of equity are: authorized, additional and reserve capital, as well as retained earnings (see Fig. 1). The authorized capital acts as a characteristic of the total nominal value of the company's shares acquired by shareholders, i.e. the amount of funds provided by the owners to ensure the statutory activities of the enterprise during its creation. The charter of the company fixes the size of the authorized capital, the nominal value of the shares, their number, categories of shares (ordinary, preferred), the rights of the owners of the shares. Contributions to the authorized capital can be both cash and tangible and intangible assets. At the time of the transfer of assets in the form of a contribution, the ownership of them passes to the economic entity, i.e. investors lose property rights to these objects.
The content of the category "authorized capital" depends on the legal form of the company. For example, for a joint-stock company (JSC) this is the nominal value of shares of all types, which cannot be less than a thousand times the amount (for JSC) or a hundred times the amount of the minimum wage established by the Federal Law on the date state registration society. If, at the end of the financial year, the value of the company's net assets turns out to be less than the authorized capital (but not less than the minimum value determined above), then the company will be obliged to announce a decrease in its authorized capital.
A special place in the implementation of the guarantee of protection of creditors is occupied by reserve capital, the main task of which is to cover possible losses and reduce the risk of creditors in the event of a deterioration in the economic situation. Behind this source of financing are the owners of ordinary shares, and its formation is nothing more than a restructuring of the liabilities side of the balance sheet. The reserve capital is formed in accordance with the procedure established by law and has a strictly designated purpose. The formation of reserve capital occurs through annual deductions from net profit and in the amount provided for by the charter of the company, but not less than 5% of its authorized capital. In accordance with Federal Law No. 120 “On Joint Stock Companies”, the funds of the reserve fund are formed in order to cover losses, redeem the bonds of the company, and also in the absence of other means of repurchasing own shares.
The next element of the equity capital structure is additional capital.
Additional capital is an item on the balance sheet of the company, which reflects the following elements:
● the amount of revaluation of fixed assets, capital construction facilities and other tangible assets of the organization with a useful life of more than 12 months, carried out in the prescribed manner;
● the difference between the sale value of shares, received in the process of formation of the JSC's authorized capital through the sale of shares at a price exceeding the face value, and their face value;
● positive exchange differences on contributions to authorized capital in foreign currency;
● the procedure for using this capital fund, as a rule, is determined by the owners when considering the results of the enterprise's activities for the reporting period. It can be used to increase the authorized capital, pay off the balance sheet loss for the reporting year, and can also be distributed among the founders of the enterprise;
● the form of functioning of the enterprise's own capital is;
● retained earnings (RP). This is a part of the profit that is not distributed in the form of dividends between shareholders (founders) and is not used for any other purposes. Due to the relative liquidity of this category of capital, it is most often used to replenish working capital enterprises. The retained earnings fund can increase from year to year, leading to the fact that, for example, in successful joint-stock companies, NP occupies a leading position among the components of equity.
The constituents of the UK can also be classified according to other criteria, for example, according to the method of preparation. In the composition of equity, there are: invested capital, that is, capital invested by owners (founders) in an economic entity; and accumulated capital - capital created by the enterprise itself in excess of what was originally advanced by the owners. Invested capital means the par value of ordinary and preferred shares, as well as capital received in excess of the par value of shares and gratuitous values ​​received. Accordingly, the first component of the invested capital (par value of shares) refers to the authorized capital fund, the second component (in excess of the par value of shares) to additional capital, and the third component to the corresponding special funds, depending on the purpose of using donated funds.
Accumulated capital is reflected in net income distribution items (reserve capital, retained earnings, special funds). At the same time, despite the fact that the source of formation of individual components of accumulated capital is net profit, the goals and procedure for the formation, directions and possibilities for using each of its items differ significantly. These articles are formed in accordance with the legislation, founding documents and accounting policies.
All sources of equity capital formation can be divided into internal and external. Internal sources include: net profit of the enterprise, depreciation, property revaluation fund, income from leasing, settlements with founders, etc. External sources is the issue of shares, gratuitous financial assistance, etc.
Equity has the following advantages.
1. Ease of attraction: decisions related to increasing equity capital (especially through internal sources of its formation) are made by the owners and managers of the enterprise without the need to obtain the consent of other business entities.
2. Manifests best ability generating profits, because using it does not require the payment of loan interest.
3. Provides financial stability enterprise by guaranteeing its solvency in the long run and reducing the risk of bankruptcy.
At the same time, equity capital has a number of disadvantages:
● Limited volumes of attraction of this type of funds.
● Relatively high cost of this source.
● No increase in the return on equity ratio, which is provided by borrowed funds .
Attracting one or another source of financing for the company's activities is associated with certain periodic costs. For example, shareholders need to pay dividends, banks - interest payments for the use of credit resources, investors - interest on investments. In other words, the sources of funds in most cases are not free, so it would be quite logical to use such a concept as the “cost of capital”1.
The cost of funding sources is understood as “the amount of funds that must be regularly paid for the use of a certain volume of attracted financial resources, expressed as a percentage of this volume, i.e. expressed as an annual interest rate. Since the costs associated with paying interest have different interpretations in tax regulations, it turns out that attracting the same amount of funds, but from different sources, can cost the company either more or less.
Considering the cost of a company's equity capital, it is advisable to single out three main sources: equity capital in the form of preferred shares, equity capital in the form of ordinary shares and reinvested earnings. Let us describe each of these elements in more detail.
It is known that in an equilibrium market, the cost of such a source as "equity capital in the form of preferred shares", for which a fixed percentage of the nominal is paid, is calculated by the formula:
kps = Dps / Pm , (1)
where Dps is the expected dividend; Pm is the market price of the share at the time of valuation.
If the company decides to increase capital through an additional issue of preferred shares, formula (1) takes the form:
kps = Dps / NPps , (2)
where NPps is the projected net proceeds from the sale of shares (excluding placement costs).
The cost of the equity capital in the form of ordinary shares is calculated with more conventionality due to the uncertainty of the amount of dividends on ordinary shares (which depends primarily on the effectiveness of management). The most common method for assessing this type of capital is either the CAPM model or the Gordon model. Gordon's model has the following form:
kcs = D1 / P0 + g , (3)
where D1 is the first expected dividend; P0 is the market price of the share at the time of valuation; g is the declared dividend growth rate.
Among the shortcomings of the Gordon model is the fact that this algorithm is applicable only to companies that pay dividends. It also does not take into account the risk factor, which makes the CAPM model more objective. According to the logic of presentation, we will consider it below.
The cost of the source "reinvested profit". Regarding this source of financing for the company's activities, a number of facts can be cited that characterize it from the standpoint of the main spontaneous source of replenishment of the company's funds:
● speed of mobilization of funds, which does not require special mechanisms (unlike the issue of shares and bonds);
● the absence of emission costs makes this source cheaper than the others;
● no "signal effect"2.
The value of the source of funds "reinvested earnings" (krp) is approximately equal to the value of the source of funds "equity in the form of ordinary shares" (kcs). This is due to the preference of owners to receive dividends instead of reinvesting profits (in case the expected return on such reinvestment is less than the return on alternative investments of the same degree of risk) and use funds in the capital market by acquiring new shares in their firm.
An enterprise that uses exclusively its own capital has the greatest financial stability, but due to the fact that it, as a rule, does not seek to diversify the structure of its assets even in the presence of favorable market conditions, it thereby limits the pace of its development and excludes the possibility of obtaining excess profits. in the short term, which inevitably leads at any given moment to its underestimated market value.
Since the activities of the middle and big company(in addition to legal owners) is usually financed by a group of persons (lenders) representing a variety of creditors, let's consider situations that develop under the influence of this factor. These funds are provided on a long-term basis and constitute "their" capital of the company. However, a number of conditions must be taken into account:
● Landers provide only financial resources;
● the volume and terms of supply of resources are predetermined by the original contract;
● resources are provided for temporary use for a predetermined period;
● the contract stipulates all conditions for the return of these resources;
● You have to pay for the use of financial resources.
The object of transactions with landers is borrowed capital, which is understood as "a set of long-term obligations of an enterprise to third parties" . Borrowed capital (LC) is defined as a part of the value of the property of an economic entity acquired on account of the obligation to return to the lender (bank, supplier, etc.) money or valuables that are the equivalent of the value of this property. In the composition of borrowed capital, there are short-term and long-term borrowed funds, as well as accounts payable (Fig. 2).