The capital account tracks investments and loans within and outside a country, including financial transactions and interest payments. It helps provide an accurate picture of capital inflow and outflow, and includes financial indicators such as debt forgiveness and royalty payments. Sometimes called a current account, the capital account is a device that allows easy tracking […]
Leverage capital is when a business or institution uses its own funds plus borrowed funds for investment. The ratio between the borrowed funds and the investor’s own funds is the leverage ratio. Banks have higher leverage ratios than corporations, but both must consider the risk level of their investments. The potential returns and losses are […]
Net present value calculations use a company’s cost of capital to discount future dollars to present value, allowing for dollar-to-dollar comparisons when making business decisions. Multiple cost of capital rates can be used for a more comprehensive analysis. Poor estimates or an inappropriate cost of capital formula can lead to poor results. Net present value […]
Capital equipment includes furniture, machines, appliances or consumables used for commercial purposes. Accounting departments manage the purchase, receipt, and setup of these items. Furniture, machines, and other equipment can be classified as assets or expenses depending on the company’s policies and national accounting rules. Capital equipment is often a large item that a company installs […]
Capital gain is a profit made from the sale of a capital asset, which is often subject to different tax laws. Accounting methods separate capital gains from other profits to accurately calculate tax liability. Selling equity assets can result in capital gain, but it depends on the market value and expenses associated with ownership. The […]
Principal stripping involves transferring the principal of an asset to a third party to make it unattractive to potential creditors seeking payment. This can be used as an investment strategy, but advanced planning is essential to avoid fraud charges. Companies can also use principal reduction plans to protect assets against potential lawsuits. Principal stripping is […]
Paid-in capital is the amount of money raised or paid out from a stock offering, representing the par value of the share. Any amount paid in excess of face value is additional paid-in capital. Recapitalization can affect the amount of money raised. The increase or decrease in the value of the stock as it trades […]
Working capital analysis evaluates a company’s creditworthiness by assessing changes in current assets and liabilities, helping lenders determine financing needed for routine operations. It’s important to review changes in net worth and understand a company’s normal business cycle to accurately analyze working capital needs. Working capital analysis is one way to assess a company’s creditworthiness. […]
Fixed assets, such as buildings and manufacturing equipment, lose value over time due to wear, age, and other factors. The consumption of fixed capital reflects this loss and is used for tax and accounting purposes. It is also used in macroeconomic analysis, with CFC accounting for 12% of US GDP in 2009. Fixed assets refer […]
Working capital factoring allows companies to sell invoices and receive a percentage of the balance immediately, with the factoring company collecting payments directly from customers. This can provide cash flow and save time on collections. It is a viable financing option for businesses without access to a line of credit. Working capital factoring is a […]
Risk-adjusted return on capital is a financial ratio used to measure the return on an investment while taking into account the risks involved. It is used to evaluate high-risk projects or investments and can be adjusted to incorporate different types of risks. A risk management department is needed to monitor and control risks. Risk-adjusted return […]
Capital improvements add or replace major elements in buildings or structures, increasing their value or improving their use. Individuals, companies, and government entities use them for different reasons, and must account for all costs as projects can quickly go over budget. A capital improvement is the addition or replacement of a major element to a […]
Choosing a working capital policy depends on the level of risk you can manage. A conservative policy matches business assets and liabilities, a matching policy leaves more cash to reinvest, and an aggressive policy allows for rapid growth but carries high risk. It can be difficult to choose the best working capital policy, and the […]
Liquid capital refers to assets that can be easily converted to cash without losing value. It is important in the business world as it indicates financial strength and helps companies meet debt obligations. Those with abundant liquid assets are considered less risky by investors. Liquid capital is the total value of assets held by an […]
Net Investment in Operating Capital analyzes a company’s capital expenditure and working capital. Large investments in long-term assets can lead to financial difficulties during economic downturns, and low working capital can restrict a company’s ability to obtain loans. Net Investment in Operating Capital is a two-part analysis that looks at two different types of business […]
Capital is the money companies use to grow, raised from investors through selling stocks and bonds. Governments regulate the capital market to build investor confidence and protect their money. Laws on corporate transparency and protecting investors’ money are important factors in developing the capital market. In economics, capital refers to the resources that companies use […]
Excess capital is capital in a company that comes from sources other than retained earnings and equity capital, and is recorded separately on balance sheets. It can be acquired by selling shares above face value, acquiring a company with surplus capital, or receiving donated shares. Companies must follow standard accounting procedures and make certain information […]
The cost of capital and the capital asset pricing model (CAPM) are used to review and value investments. The cost of capital is the interest rate paid on funds used for business activities, while CAPM assesses risk versus return. They help companies select projects with strong financial returns, but cannot account for unexpected external factors. […]
Working capital is the difference between a company’s current assets and liabilities, used to determine short-term financial health. Changes occur when either item increases or decreases. It is important for lenders and investors to assess a company’s financial health. Working capital is a basic accounting formula that businesses use to determine their short-term financial health. […]
To maximize working capital, businesses should pay bills at the last possible moment, improve collections, minimize inventory, and review employee purchases. Working capital management involves coordinating different aspects of the business for success. When managing working capital, a business should try to pay bills at the last possible moment and improve revenues. A business should […]
