Inhaltsverzeichnis
Debt capital
Debt capital is the opposite of equity capital. In contrast to its own capital, which is available to a company or local authority for investment purposes, outside capital is made available by creditors for a limited period of time. It thus represents that part of the capital which is not attributable to the owners. Like a loan, this foreign capital must be repaid in full at a given time.
Alternatively, the borrowed capital can also come from internal financing in the form of provisions. As a rule, however, it comes exclusively from external financing and occurs when the capital transfer is limited in time and can be terminated by a third party. As a rule, the creditor is also entitled to remuneration independent of the success of the transaction, for example in the form of interest on loans. Thus, it also applies to shareholders who do not provide equity capital for their company, but rather external capital through various forms of loans. Changes in borrowed capital are referred to as net financing costs.
Examples of debt capital:
– Loans of all kinds (summarised in business administration as “liabilities”), i.e. capital transfers are limited in time, e.g. a bank credit with a term of 5 years or a supplier credit (open account) with a term of 14 days.
– Provisions (for payments to be made later, such as tax payments, social benefits, etc.)
– Passive invoice items
Debt capital takes precedence over equity capital, i.e. in the event of insolvency, debt capital must first be serviced. Debt and equity together make up the total capital of the company.
In the short term:
Debt capital with a term of less than one year, such as overdrafts, payments received and trade payables (open invoices).
In the medium term:
foreign chapter, the must be repaid within 1 to 5 years, e.g. a maturity loan due within 3 years.
Long-term:
Debt capital available to the company for more than 5 years (debts), such as pension provisions, bonds or bank loans.
Distinction between liabilities and equity
It is not always easy to make a precise distinction between borrowed and own capital, since provisions already represent a portion of borrowed capital, even though they originate from internal financing. This is justified by the fact that it is possible to repay the loan, as in the case of pension provisions, for example. Even if there is an interest rate independent of the success, it is already debt capital. In addition, there are even mixed forms as an intermediate stage between debt and equity capital, also called mezzanine capital.
balancing
For accounting purposes, it is necessary to indicate the types of origin and maturities of the capital. Liabilities are recorded on the liabilities side, directly after provisions and liabilities. There are separate items in the balance sheet for deferred taxes and prepaid expenses. The remaining term of the borrowed capital must be stated as “<1 year” or “>1 year”; information on the scope, type and form of collateral must also be provided in the notes for remaining terms of more than 5 years. The difference between current and non-current liabilities is calculated as medium-term debt.
key figures
Important key figures can be calculated with the help of borrowed capital. The debt ratio, for example, provides information on the share of debt financing in total financing. It can also be used to calculate the debt-equity ratio and the liquidity ratio.
If the debt ratio is high, the earnings risks increase because significantly more of the profits are used for interest expenses. For a high indebtedness, the break-even point is also significantly higher. The higher the debt ratio, the higher the employment risk. Future liquidity risks cannot be ruled out either. If, on the other hand, the debt ratio is low, the default risk for creditors is significantly lower, as their receivables can largely be paid out of the company’s assets.
real estate financing
In real estate financing, debt is the sum of all loans taken out to finance a construction project. It is generally secured by mortgages.