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What is capital? Concept of capital money, cash income and expense flow and definition

What is capital? Capital, money, goods and Labor put into operation by the founders of the enterprise. The total investment made for a business or enterprise can be defined as all means of production, ready-to-use money and assets. We have information on capital.

1st. The concept of capital:

Capital, money, goods and Labor put into the business by the founders of the business. The total investment made for a business or enterprise can be defined as all means of production, ready-to-use money and assets.

Businesses are established with a certain capital. It consists of capital, equity and liabilities. In small businesses, all of the capital is provided by entrepreneurs, while large businesses have to fund with debt alongside equity. An entity’s funds are divided into internal and external sources of funds according to its sources.:

Internal sources of funds:

Money, goods, rights, stocks and so on put by founders during the founding period. The funds provided as a result of operating activities are depreciation, reserve funds, non-distributed profits.

External sources of funds:

İn cases where the internal sources of funds of enterprises are insufficient, they are debts received with different maturities from banks or third parties. There should be no recourse to high-cost external sources of funds that will strain solvency.

Fixed assets capital:

The assets, securities and real estate of the entity is the amount of other assets. Real estate and real estate are the basis for the company. The start of transactions, the firm’s continuity and the chances of competition depend on fixed assets capital. Fixed assets are the long-term values of the enterprise that will not be wasted or used in the course of business activities and will not end easily, even if the business ends in failure.

Working capital:

Working capital is the money needed to cover expenses such as tools and equipment and wages until income is generated as a result of business activities.

2nd ed. Money flow:

Cash income and cash expenses in a given period represent money flow. Money flow is estimated at a selected period, which is also very important for the management, planning and control of the business, which is normally very small. The estimate of the money flow is normally prepared month by month for a year. The estimated cash flow indicates whether the need can be met. If the capital required for daily work is deemed insufficient, the means to increase are investigated.

Forecasting the flow of money also makes the best use of cash resources for the execution of the business. Money flow estimation helps the entrepreneur to decide the volume of business he / she will put forward and gives information about the money he / she will collect within the set period. It helps determine purchasing or production capacity, ensures continuity of work and provides information so that it can finance orders.

2.1. Flow estimation:

Flow estimation is made using the budget data of the enterprise such as sales, production, management. It is performed in the following stages:

  • The amount of time the money flow estimate will be made is determined.
  • Calculated expected revenue stream (cash inflows).
  • Calculated expected expense flow (cash outflows).
  • Net money flow over the period is calculated by comparing income flow and expense flow. Inputs and outputs are predictive. If the minimum amount of cash is more than necessary, the debts cannot be paid and the reputation will be shaken.
  • Cash balance is added to the net cash flow of the same period and the net balance sheet of the period is obtained. (The amount of money that must be kept in the safe in order for the business to continue its operations without being in a difficult situation is called the minimum cash balance.)

2.2. Cash revenue stream:

Cash revenues are generally provided in trade and industrial enterprises from::

  • Advance sales
  • Collection of receivables
  • Interest received
  • Share
  • Fixed value sale
  • Sale of securities
  • Bank loans
  • Other sources of funding etc.

Collection items other than advance sales and receivables can be estimated fairly accurately based on past trials and expected changes can also be taken into account. Sales and receivables are subtracted from the sales and receivables budgets regulated by the entity.

2.3. Cash expense flow:

Cash expenses, usually in trade and industrial enterprises, are as follows::

  • Advance acquisitions
  • Salary, wages etc. payments
  • Raw and auxiliary materials
  • Insurance expenses
  • Interest payments
  • Fixed value acquisition
  • Distribution and management expenses
  • Debt payments
  • Other operating expenses etc.



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