What is contributed capital? It is the money a company has borrowed at one time or who have lent the company money. This can be in the form of debt, stocks, debentures and any other forms of assets you have. Anytime you borrow money from a third party or any time you issue stock to the company, you are adding contributed capital to your balance sheet.
The way capital is used and measured varies depending on your circumstances. It can either be tangible or non-tangible. Non-tangible capital represents those items of value which are not traded on a regular basis such as patents, franchises, equipment and property. On the other hand tangible capital is all that which is traded or lend (such as receivables, payroll and inventory). One way to look at the difference between the two is that tangible is what is being spent on plant and equipment while non-tangible is what is being spent on inventory and capitalizing activities.
It is a good idea to break capital into two categories: Working Capital and Liquid Capital. Working capital is what is needed to finance daily operations such as rent, utilities, payroll and loans. This represents the cash flow that a business needs to maintain its operations. Usually this type of capital is obtained from banks or from the issuing commercial lender. The most common working capital is short-term loans from banks and mortgage banking institutions.
Liquid capital on the other hand represents the excess cash that a company can invest in operations and/or product development. This type of capital is usually obtained by borrowing from a bank or the issuing commercial lender. Usually banks provide higher interest rates than other sources.
One way of increasing the capital return is through dividends. Dividends are payments made regularly to the shareholders of the company. Most companies use dividends to release retained earnings to expand their business and provide new products or services. If retained earnings are released without any further investment, the company will receive an amount equal to the total of dividends plus a profit for the year.
The retained earnings refer to profits retained by the company after all expenses have been deducted. These profits are then distributed between the owners of the company divided between them as their annual dividend. The annual dividend is generally computed by multiplying the net profits by the current shareholder’s capital. For instance, if a shareholder owns 100 shares of a given company’s stock, his/her annual dividend will be the company’s capital. Also, if a company has no share holders, the capital it receives is retained by the company until it sells some of its stocks to the public. The first sale of stock represents the company’s capital increase.
There are many factors that affect a company’s retained earnings. Among them are the retained earnings of the business as well as the overall market trends. Another factor that affects the retained earnings of a company is the financial performance of its owners. This factor is also an important determinant of capital gain and retained earnings. It is usually believed that the longer the time frame until an owner sells his share, the larger the capital gain he will receive.
In order for business enterprises to plan and analyze their retained earnings and capital, they must calculate the net worth as well as their retained earnings using the CAGR method. This method is a simple mathematical formula. Capital is what is retained from a business’ original assets after all expenses and payments have been made. Retained earnings represent the value of all the money an enterprise makes after all the debts of the enterprise have been repaid. When an enterprise sells a portion of its assets to raise funds, the value of what is contributed capital is accounted for in that transaction.