Equity consists of funds owned by an entity, advanced to them in the creation of net assets. The value of this capital is one of the most significant indicators of economic potential and performance. Own funds are divided between current and non-current assets. Usually the total amount of these funds is greater than the value of non-current assets.
The calculation of equity is carried out as the sum of the authorized, reserve and additional capital, as well as cash funds owned by the company. Equity is organized from the day the company was founded with its subsequent build-up at the expense of external and internal, borrowed and own sources of funds. The main source is the profit of the enterprise, in addition to it, the issue of shares, accounts payable, various loans, and an increase in stable liabilities can serve as a source. Equity management can be carried out only after a thorough study of the effectiveness of this activity in the previous period. Here it is worth considering not only capital itself, but also its structural elements.
Equity management is associated both with ensuring the efficient use of the part that has already been accumulated, and with the organization of own financial resources intended to ensure the future development of the enterprise. During the formation of resources, they are classified according to sources that may be internal or external.
In the first group, the main place is given to the profit remaining at the disposal of the enterprise itself, and it creates the predominant share of its own financing resources, which allows for an increase in the capital itself, respectively, and the company's market value. In the composition of internal sources, a certain role is assigned to depreciation deductions, especially for enterprises with a high price of their own fixed assets and intangible assets. It should be borne in mind that they do not make a larger amount of the organization’s own capital, but only serve as a means of reinvesting it. Management of equity is carried out taking into account the fact that other internal sources do not have a significant role in the formation of the organization’s resources.
If we talk about external sources of the formation of equity, then the main value is the additional share or share capital. One of these sources of creating equity for some companies may be financial assistance provided free of charge. Other external sources are tangible assets and intangible assets, which are included in the balance sheet of the company.
Management of the organization’s own capital is carried out on the basis of managing the creation of own resources. In order to ensure the effectiveness of this process, a special policy is being developed that is focused on attracting own resources from various sources in accordance with the needs of its development in the future period.
Bank equity management is carried out according to similar principles. The main tasks in this case are:
- identification of the appropriate amount of capital;
- increase in the capital of the organization due to the issue of additional shares and retained earnings;
- determination of the most rational structure of shares that are only issued;
- definition of dividend policy and its implementation.
It turns out that the management of equity is carried out according to a well-thought-out plan, taking into account all the nuances of the current situation. Each enterprise in this case requires a specific approach.