Financial structure of the company

accounting

The financial structure of a company is the form and weight they have in the composition of the balance sheet, both net worth and liabilities.

In other words, the financial structure of the company tries to define the amount incurred in own or third-party resources at the time of financing.

In accounting science, the study of annual accounts is of vital importance to know the economic-financial status of a company, one of the annual accounts being the balance sheet.

The financial structure of the company and the balance sheet

In the balance sheet we can see the relationship between assets, liabilities and equity. Thus, the sum of the liabilities and the net worth must always result in the totality of the assets: assets = liabilities + net worth.

The asset includes all tangible and intangible properties, in addition to the collection rights and the currencies that we have in banks or cash. On the other hand, the liabilities and the net worth tells us how and in what amount all the assets of the company have been financed.

Therefore, the more liabilities than equity, the more external financing will have been used. If, on the other hand, we find that the net worth is higher than the liabilities, a higher use of self-financing will be denoted.

Then, the financial structure serves to show us the degree of external or own financing that has been used in the company.

Scenarios and related ratios

After having exposed how the distribution in financing works and its interpretation in the structure of the company in balance, we could think that having the liabilities to the minimum and the net worth to the maximum would be the ideal strategy in economic and accounting terms.

First of all, before making such a statement, we must take into account the opportunity cost. It explains to us that making one decision automatically excludes us from another. An easy to understand example is if we decide to go to the movies, we cannot dedicate that period of time to study.

Well, exactly the same thing happens to the company, the rejection when requesting external financing prevents us from attending two investments at the same time, so we limit ourselves to choosing only one. This may sometimes be interesting for the company, but if we need, on the one hand, the urgent purchase of merchandise and, on the other, the urgent repair of machinery, here in theory it could not be chosen, both needs should be attended to, even if it meant the use of external financing.

Each case is different. Therefore, it will depend on the situation. There may be situations in which it is better financially speaking to borrow (external resources) and others to ask for money from investors (own capital). Both have a cost. The costs of borrowed resources are primarily related to interest, and the costs of equity are primarily related to shareholder remuneration.

Economic structure

Tags:  Commerce banking bag 

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