What exactly is the company's capital and how to obtain it?
Capital is the basis, the foundation of every business activity. Simply put, this concept means the resources of the enterprise. They can be internal, external, own, foreign, timely or untimely. It is capital that makes a company function on the market, makes it move and drives activities. What is the company's capital and how to obtain it? You will find out by reading our guide.
Company capital - types
There are many classifications of capital depending on what factor we take into account. For example, in economic theory there is a division into real and financial capital. Real capital refers to specific material goods, e.g. buildings, means of transport, machines, devices. These are all the accumulated goods that serve the development of the company. Financial capital is a source of real capital financing - cash, credit, securities. Often the sources of capital are equated with the sources of financing the enterprise, but this is too far-reaching simplification, not all methods of financing activities are also sources of capital. The sources of capital are not short-term liabilities of the company that arise due to:
- asset operations,
- funds from the EU.
What, then, can be considered capital? It will be all liabilities on the financial market that bear interest. Another classification of capitals is the division into own and foreign.
The company's equity is one of the most important elements thanks to which the company can function on the market. As the company grows, equity should increase. There are four elements that make up the equity in an enterprise. These are:
- company owners' contribution - share capital,
- reserve and spare funds, share capital,
- net profit of the enterprise,
- funds created by a company for a specific purpose, such as an equity fund.
Foreign capital is associated with the need to repay it along with tax deductible costs. It is obtained only from external sources, such as loans, bank loans, financial leasing and proceeds from the issue of debt securities.
The first to write about the capital structure were Franco Modigliani and Merton Miller in 1958. There is still a debate about this. The concept of capital structure is very broad and heterogeneous. There is no single, proven structure model that can be applied to all businesses and be successful. One thing is certain - the structure of capital affects the effects of the activities carried out, the costs of the activities of units, but also the financial benefits achieved. The structure of capital is analyzed, thanks to which it is possible to determine which entities provide the enterprise with funds, learn about the sources of financing the company, the level of risk and profit. The assessment takes into account the following indicators:
- fixed assets debt,
- long-term debt,
- equity debt,
- overall debt level.
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How to raise the company's capital?
There are many ways to raise capital (recapitalization of the enterprise). Traditional methods include all bank loans and credits. Nowadays, however, it is more and more difficult to obtain a loan, which is why entrepreneurs are turning to alternative sources of raising capital. Such forms include:
- crowfounding platforms,
- business angels,
- venture capital,
- private equlity,
- issuing shares on the capital market,
Entrepreneurs also willingly use leasing. Leasing companies are more willing to help companies than banks, although of course it is associated with high costs.