Carrying out business activities, each enterprise should have capital for investing in the formation of assets. It includes the total cost of all funds in tangible and intangible form. The multidimensionality of the concept of “capital” is characterized by dozens of definitions, but in this case, the types of capital by ownership of the enterprise that allocate own funds and borrowed will be considered.
Borrowed capital means attracted funds (bank loan, commodity loan,
financial leasing, issue or other values), on a repayable basis, through which the company is financed. All of its forms are financial liabilities that the company must pay in due time. In terms of validity, they can be short-term - up to a year, and long-term - more than a year.
Own funds are characterized by the fact that they belong to the enterprise on the basis of property rights and are used for its development. They have a higher ability to generate profits in any field of activity, because when using them, you do not need to pay the
loan interest. Assets formed at their expense are the net
assets of the company, which ensures its financial stability.
The main sources of equity are external and internal. TO
external include:
authorized capital (the amount of funds provided by the owners to carry out activities);
gratuitous financial assistance to the enterprise; Attraction of share or joint
additional capital , etc.
The composition of internal sources includes: profit remaining at the enterprise; depreciation charges, etc.
High performance of an enterprise depends on the structure of capital used. This structure is the ratio of own and borrowed funds involved in the process, and affects the return on assets, stability, and solvency of the enterprise, and also determines the ratio of the degree of risk and profitability during the development of the company.
Therefore, if a company uses only its own funds, then it has great financial stability. However, it also limits the rate of its growth by not being able to form an additional volume of assets, and not using the increase in profit on invested funds.
An enterprise that uses only borrowed funds has great potential for its development and the possibility of growth in profitability, but this to a large extent generates financial risk and bankruptcy, which increase with an increase in the share of borrowed funds to the total capital.
In practice, you can make sure that there is no single recipe for the ratio of using your own funds and borrowed funds. Nevertheless, there are a number of factors, considering which it is possible to purposefully form a structure, providing the necessary conditions for the efficient operation of the enterprise.