Some important financing concepts

Last modified:

Tuesday 7 September 2021

This section contains some basic financial concepts every entrepreneur should know  : 

  • The various sources of financing appear as liabilities on the balance sheet. Together, they form the resources available to the company, and represent the company's debts to its creditors, ranked in descending order of payability. Of course, here debts should be understood in the broadest sense of the term.
  • Their compensation as assets on the balance sheet, notably in the form of liquid assets, represents the company's available resources.
  • Capital, items resulting from self-financing and subsidies form part of the company's equity (or own capital) while the credits constitute the funds of third parties or debts (in the restrictive sense of the term).
  • The equity represents the company's debt to the entrepreneur, the funds from third parties to external creditors.
  • The corrected level of equity (similar to the concept of net assets) of your company is a basic element used to determine its accounting value and to evaluate the quality of its structure and, more specifically, its solvability
  • Credits (or third-party funds) with a term of over a year, and own funds, form the permanent capital, or in other words: the company's stable resources. We also refer to equity financing, although this concept can sometimes be restrictive and only cover certain forms of long-term credits.
  • The difference between permanent capital (stable resources) and permanent assets (sustainable use, or fixed or immovable assets forming the working capital).
  • Certain types of medium and long-term credits (classified as "quasi own funds"), such as subordinated loans, are often assimilated with own funds. However, these are third-party funds but form part of the equity financing in the strictest sense of the term, unlike classic credits.
  • Advances (credits) issued by one or more company shareholders, and which are recorded like other short-term debts, can also, depending on interpretations, be assimilated to own funds.

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