Corporate Financing Sources and Financial Structure

Sources of Financing for the Company

Financial Resources: Concepts and Classification

The establishment and operation of a company requires the uptake of financial resources to obtain the funds which will be used by the company in developing its business.

These resources or funding sources constitute the company's financial structure, i.e., the origin of funds used in the Economic Structure.

Financial resources, from an accounting perspective, can be classified into:

A. Net Worth

It is the residual assets of the company after deducting all its liabilities. It includes contributions, either at the time of its establishment or later, by partners or owners, with no consideration of liabilities, as well as retained earnings or other changes affecting them.

• A-1. Equity: It consists of all funding sources that do not constitute payment obligations for the company.
• A-2. Value Exchange Adjustments: Income and expenses recognized directly in equity.
• A-3. Grants, Donations, and Bequests Received.

B & C. Liabilities

Present obligations arising as a result of payments to third parties for past events, for which the company expects an outflow of resources that can produce profits or future economic performance upon extinction. These effects are understood to include the provisions.

C. Current Liabilities

Current liabilities comprise:

• a) The obligations related to the normal operating cycle that the company expects to settle in the course of it. (For these purposes, the normal operating cycle means the time lag between the acquisition of the activities incorporated into the production process and the realization of products in the form of cash or cash equivalents. When the normal cycle is not clearly identifiable, it will be assumed to be one year).
• b) The expiration or termination obligations which are expected to occur in the short term, meaning the maximum period of one year from the date of the closing of the exercise. In particular, those obligations for which the company has not been given an unconditional right to defer payment within this period; therefore, non-current liabilities are reclassified as current when appropriate.
• c) Financial liabilities classified as held for trading, excluding financial derivatives whose settlement period exceeds one year.

B. Non-Current Liabilities

Other elements of the liabilities.