Equity management. Equity turnover ratio

The main asset in the conduct of economic activity is considered equity and borrowed capital. The task of any company is to increase its finances and repay the resulting debt in a short time. Equity and borrowed capital used to create a company, expand production, modernize equipment, improve technology. Any investment should pay off. Further consider what equity.

Definition

The company’s turnover involves various resources. Some of them are equity of the organization. Formation and Management the asset is aimed at generating income. Taking this into account, we can disclose the concept as follows. Equity and equity - part of the financial assets involved in the turnover and generating profit. This fund consists of several parts. Equity structure includes: authorized, reserve, incremental, trust funds, retained earnings.

Creation goals

Equity is formed for:

1. Formation of non-current assets. Equity funds can be invested in different funds. Among them: fixed assets, intangible assets, long-term investments, construction in progress and so on. In this case, they talk about the actual capital stock.
2. Formation of current assets. Funds can be invested in materials, semi-finished products, stocks of raw materials, work in progress, receivables (current) and so on. In this case, they talk about their own working capital.

The company should develop a policy aimed at the comprehensive achievement of these goals.

Sources of equity

The rational use of the accumulated part of assets is undoubtedly the most important task of the company. However, one should not forget about the creation of resources that ensure the development of the company in the future. Equity structure formed by internal and external funds. The key objective of the company is to ensure the proper level of self-financing, expanding the scope of economic activity in the future.

Domestic funds

These sources of equity primarily include the profit that remains at the disposal of the company. It forms the majority of assets, provides for their increase. Accordingly, profit helps increase the market value of the company. A certain role in the structure of domestic funds belongs to depreciation. Especially great is their importance in companies using OS and intangible assets of high cost. However, it should be said that depreciation charges do not increase the amount of equity. They act as a reinvestment tool.

External funds

The main place in their composition is attracted share capital or share capital. For some companies, external assistance comes from gratis financial assistance. Usually it relies on some state-owned enterprises. Other external sources include NMAs and tangible assets included in the balance sheet that are transferred free of charge.

Creating reserves

The main source is profit. The reserve fund is used to compensate for unforeseen losses and probable losses from economic activity. In other words, it is insurance by nature.The rules for creating a reserve are enshrined in regulations governing the work of a company of this type, as well as constituent documentation. Due to this capital, the volume of the company's own funds increases. Deductions are made until the sizes established by the constituent documentation are reached. Moreover, they should not be more than 15% of the paid authorized capital, and their amount cannot exceed 50% of the profits. Reserve capital is created on the basis of legislative provisions and is mandatory. The company has the right to voluntarily create additional funds. The order of their creation is established only in the constituent documentation. Accounting for reserves should provide the information necessary to monitor compliance with the upper and lower limits. In all cases, the maximum amount of reserves cannot be more than the amount fixed in the constituent documentation.

retained earnings

As a rule, the company uses these funds to accumulate property or replenish current assets. Retained (net) profit is the free amount, ready for circulation. This fund may increase annually. This is due to internal accumulation. Such events may be of a production nature if the finances are used to expand and develop the company, modernize equipment, and non-production if the funds are used to implement measures of social and material support for employees and for other purposes not determined by production output.

Special Funds

Their formation takes a significant share of equity. Special funds are needed to cover the costs of creating new production assets, social infrastructure, etc. The main source is the part of the profit remaining at the disposal of the company. In the framework of financial control, the strict delineation of assets allocated by the company to the development of production and consumption needs is of utmost importance. Its need is associated with certain tax benefits, allowing to reduce taxable profit on the part that is used to finance capital investments. The accumulation of profit for the implementation of targeted measures is carried out through the formation of appropriate special funds. Their number, name, rules of use are determined by the company independently and is fixed in the financial policy. The funds go to special funds after paying off tax debts to the budget. Such reserves include property received free of charge, repayable and non-repayable state appropriations for financing non-productive activities related to the maintenance of communal, social and cultural facilities, reimbursement of costs for restoring the solvency of a company located on budgetary support, etc.

Control methods

Enterprise equity management aimed at profitable investment of resources for profit on a long-term basis. The constant development of market relations strengthens the responsibility and independence of companies. Firms are constantly looking for new ways to improve the efficiency of equity management. The correct choice of a method is expressed in the financial results achieved by companies. As mentioned above, profit is the key resource of a dynamically developing company. Its size depends on various factors. The key of these is the ratio of expenses to income. At the same time, the existing regulations enshrine the methods by which company management regulates profits. Enterprise equity management may be carried out by:

1. Varying the limits of assigning assets to fixed assets.
2. Accelerated depreciation.
3. Using the methodology for calculating the depreciation of low value property.
4. Valuations and depreciation of intangible assets.
5. Provisions for doubtful debts.
6. Accounting for interest on bank loans, through which capital investments are financed.
7. Establishing the composition of overhead costs and the method of their distribution.
8. Reduced taxes through the use of benefits.

Nuances

Equity management, first of all, it is aimed at extracting income from the main activity. This process in financial management is characterized by the category of leverage - a certain factor, a slight change which can lead to a significant adjustment of the final results. Equity analysis involves the study of a number of indicators. In this case, it is necessary to clearly understand the difference between them. For example, cost of equity and the price of the enterprise is characterized by different indicators. In the first case, we are referring to some specific characteristic of the resources through which the asset is created. Cost of equity It is expressed in the existing relative annual debt servicing costs. This indicator is included in the relative group. Its value is expressed as a percentage.

Assessment specifics

Equity analysis It is based on:

1. The principle of element-wise preliminary assessment. Since the asset used consists of heterogeneous components, it is necessary to decompose it into components during its analysis. In this case, each element should be the subject of evaluative calculations.
2. The principle of a generalized assessment of the cost of capital. A prerequisite for such a calculation is elementwise analysis. The general assessment reflects the existing minimum return on capital invested in its activities, its profitability.
3. The principle of comparability of indicators of their own and attracted financial resources. The key components of borrowed capital are bank loans, as well as bonds issued by the company. The price of the former should be considered, taking into account income tax. In accordance with regulatory documents, interest on the use of bank loans is charged to the cost of products.
4. The principle of dynamic assessment. Factors that affect the weighted average cost of capital are very mobile. Accordingly, with a change in the financial indicators of individual elements, the weighted average should also be adjusted. It is determined based on an assessment of data for past periods. Obviously, the st-st of individual resources, as well as the structure of capital, changes all the time. Accordingly, the weighted average indicator will not be a constant value. It will change under the influence of various factors over time. In addition, the assessment can be made on both the created and the planned asset.
5. The principle of the relationship between the assessment of the upcoming and current weighted average capital st-sti (WACC). This relationship is provided through the use of an indicator of the marginal cost of an asset. It is characterized by the level of value of the new financial unit attracted by the company. The use of additional capital (both at the expense of its own and at the expense of borrowed resources) has its own economic borders at each stage of the development of the company. Attracting finance is usually associated with an increase in the average weighted value of an asset. It is conventionally believed that in a stable company with an established financial system, WACC remains a constant indicator with a certain variation in the resources involved in investing. But upon reaching a certain limit, it increases. The maximum st-st asset is a function of the amount of attracted resources. In this regard, implementing equity management, company management should take into account the dynamics of the marginal cost indicator.
6. The principle of determining the boundaries of the effective use of additional finance. The cost assessment should be completed by the development of a criterion for the effectiveness of such attraction. This indicator is characterized by the ratio of the increase in profitability of additional resources and the weighted average cost of an asset.

These principles allow you to create a system of key values ​​that allow for effective management of equity. These indicators determine the value of assets and the limits of their profitable use.

Net profit

Its value will depend on various factors. By exercising equity management, management should determine how rationally the resources provided to the company are used, and also establish the composition of the funds from which they come. The first moment is reflected in the elements of current and fixed assets, as well as indicators of their effective investment. Next, consider how equity accounting.

Specificity of reflection in accounting documents

Equity accounting carried out on special accounts. For the statutory fund provided ct. 80. He is passive. Cf. 80 is used to summarize information about the status and movement of funds. The balance of the account must correspond to the amount of the authorized capital, fixed in the constituent documentation. Account records 80 are produced when creating a fund, increasing or decreasing its size. Moreover, all capital adjustments are reflected in the constituent documentation. Additional assets are recorded in the account. 83. They are the result of an increase in the value of the company's property. This may occur due to:

1. Revaluation of the OS.
2. An additional issue or increase in the nominal price of a share in comparison with the market one.
3. Differences arising from the excess of depreciation amounts accrued on the date of revaluation of fixed assets with respect to deductions received from direct translation or indexation.
4. Exchange rate differences. They are formed upon repayment of arrears of contributions expressed in foreign currency.
5. Receipt of amounts allocated from the budget for long-term investments.

To sc 83 corresponding sub-accounts may be opened:

1. 83.1 - "Share premium".
2. 83.2 - "Increase in the st-st of non-current assets due to revaluation".
3. 83.5 - "Exchange differences", etc.

Accounting for reserve capital is carried out on the account. 82. This account is balance, passive, balance, stock. Trust funds are reflected in the account. 86. The account is passive, has a credit balance.

Important indicator

When assessing the solvency of the company is determined equity ratio. It characterizes:

1. Surplus or insufficient sales.
2. The rate of turnover of invested capital.
3. The activity of finances that the company risks.

If the ratio of return on equity is high, then this may lead to an increase in credit funds. As a result, it becomes possible to reach a level at which lenders become more active than company owners. In this situation, the ratio of liabilities to the capital of the enterprise increases. As a result, the firm may experience significant difficulties associated with a decrease in profits or a general decrease in prices. If the indicator is low, then this may mean the passivity of part of the assets. In this case, he indicates the need to invest in another, more suitable direction. The choice of another investment object will, in turn, be based not only on assessing the capabilities and capacities of the company. External factors will also be of great importance: the market situation, the specifics of supply and demand, and the capabilities of competitors. The turnover ratio is determined by the ratio of sales to the average annual cost of equity.The data for calculating this indicator are taken from the balance sheet. The ratio reflects the number of revolutions required to pay off debt on all bills issued by the company.