contributed capital

Examples of contributed capital in the following topics:

• Impact of the SML on the Cost of Capital

  • The plotted location of an instrument on the SML has consequences on its price, return, and cost of capital it contributes to a firm.
  • Companies often turn to capital markets in order to generate funds -- using the issuance of either debt or equity.
  • The cost of obtaining funds in such a manner is known as a company's cost of capital.
  • This would not be an attractive market situation for a company looking to raise capital.
  • Describe the impact of the SML on determining the cost of capital

• MVA and EVA

  • Market Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors.
  • Quite simply, EVA is the profit earned by the firm, less the cost of financing the firm's capital.
  • The idea is that value is created when the return on the firm's economic capital employed is greater than the cost of that capital.
  • EVA is net operating profit after taxes (or NOPAT) less a capital charge, the latter being the product of the cost of capital and the economic capital.
  • where r is the return on investment capital (ROIC); c is the weighted average of cost of capital (WACC); K is the economic capital employed; NOPAT is the net operating profit after tax.

• Capitalism in a Global Economy

  • Some thinkers argue that in the last few decades trends associated with globalization have increased the mobility of people and capital.
  • Although international trade has always existed, some thinkers argue that a number of trends associated with globalization have caused an increase in the mobility of people and capital since the last quarter of the 20th century.
  • Today, these trends have bolstered the argument that capitalism should now be viewed as a true world system, given that all national economies trade with capitalist states and are therefore influenced by capitalist policies.
  • It is generally used to refer to economic globalization: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import quotas; and the reduction of restrictions on the movement of capital and on investment.
  • Globalization may contribute to economic growth in developed and developing countries through increased specialization and the principle of comparative advantage.

• Disadvantages of the IRR Method

  • In cases where one project has a higher initial investment than a second mutually exclusive project, the first project may have a lower IRR (expected return), but a higher NPV (increase in shareholders' wealth) and should thus be accepted over the second project (assuming no capital constraints).
  • Moreover, since IRR does not consider cost of capital, it should not be used to compare projects of different duration.
  • Modified Internal Rate of Return (MIRR) does consider cost of capital and provides a better indication of a project's efficiency in contributing to the firm's discounted cash flow.

• Defining Venture Capital

  • Venture capital is a method of financing a business start-up in exchange for an equity stake in the firm.
  • Investors combine their financial contributions into one fund, which is then used to invest in a number of companies.
  • The technology firms of Silicon Valley and Menlo Park were primarily funded by venture capital.
  • A VC firm's contributions often extend beyond financial funding.
  • Facebook is one example of a entrepreneurial idea that benefited from venture capital financing.

• Development of Human Resources

  • "Human capital" is sometimes used synonymously with human resources, although human capital typically refers to a more narrow view (i.e., the knowledge the individuals embody and can contribute to an organization).
  • Human resources development (HRD) as a theory is a framework for the expansion of human capital within an organization through the development of both the organization and the individual to achieve performance improvement.
  • Organization development (OD), empowering the organization to take advantage of its human resource capital.
  • TD alone can leave an organization unable to tap into the increase in human, knowledge, or talent capital.

• Role of Financial Markets in Capital Allocation

  • One of the main functions of financial markets is to allocate capital, matching those who have capital to those who need it.
  • One of the main functions of financial markets is to allocate capital.
  • Capital markets especially facilitate the raising of capital while money markets facilitate the transfer of liquidity, matching those who have capital to those who need it.
  • Long-term capital can come in the form of shared capital, mortgage loans, and venture capital, among other types.
  • Many individuals are not aware that they are lenders providing capital, but many do lend money at least indirectly, for example when they put money in a savings account or contribute to a pension.

• The Five Cs of Credit

  • How might a potential lender use information about a debtor's capital?
  • Prospective lenders and investors will expect you to have contributed from your own assets and to have undertaken personal financial risk to establish the business before asking them to commit any funding.
  • Capital is the value of assets that a debtor currently holds.
  • Will the money be used for working capital, additional equipment, or inventory?
  • Capital is the value of assets that a debtor currently holds.

• Working capital analyses

  • Working capital is commonly defined as the funds a business needs to support its normal operations.
  • Consequently, working capital financing is needed.
  • "Most businesses need short-term working capital loans at some point in their operations.
  • This creates a need for working capital to fund the resulting inventory and accounts receivable buildup".
  • Above the breakeven point, every additional unit sold increases profit by the amount of the unit contribution margin, which is defined as the amount each unit contributes to covering fixed costs and increasing profits.

• Ownership Nature of Stock

  • The stock of a company represents the original capital paid into the business by its founders and can be purchased in the form of shares.
  • The capital stock (or stock) of a business entity represents the original capital paid into or invested in the business by its founders.
  • For example, labor, suppliers, customers and the community are typically considered stakeholders because they contribute value and/or are impacted by the corporation.