What is Debt?
Debt, or gross debt of the general government (DBGG), is released monthly by the Central Bank and is formed by the liabilities of the Union, states, and municipalities (general government). Based on statistics released by the BC, for educational purposes, we can group these liabilities into four components: securities debt, repurchase agreements, bank debt, and others, as well as external debt.
The securities debt refers to bonds issued by the National Treasury, such as those used to invest through the Treasury Direct. Repurchase operations are a liability of the Central Bank, used to implement monetary policy. Bank debt refers to debt with banks, especially those of States and Municipalities, such as in operations with BNDES. Finally, external debt refers to bonds issued by the Union abroad and loans from foreign banks taken out by the States.
Each of these components has its dynamics. For example, the Treasury manages the securities debt through bonds with different indexes and maturities. In addition, external debt is referenced in foreign currency, while bank debt has a considerable portion indexed to the TJLP. Understanding these characteristics allows you to project deficits more accurately.
According to the latest figures released in May 2017, gross debt reached $4,634 billion. If we look closely, the first two components (securities debt and repurchase agreements) are by far the most significant, representing around 90% of gross debt. As a proportion of GDP, as it is usually presented, the DBGG was 72.5%, the highest value in the historical series.
Net Debt Net
Debt, in turn, refers to the net public sector debt (DLSP) and is also disclosed monthly by the Central Bank. It is a concept that subtracts financial assets from public sector obligations. The main assets are international reserves and Treasury credits to BNDES.
What is Equity?
Equity or working capital is the total resources the company needs to conduct its daily activities, that is, to rotate. In other words, it represents the assets that the company owns and that can convert into capital within the short term, such as, for example, cash on hand, accounts receivable, bank account balance, goods, and financial investments.
It is essential to consider that working capital is the portion resulting from the difference between the company’s money and the money you should use to pay off debts, whether they consist of fixed expenses, expenses necessary for marketing, and provision of services or other extra costs.
Why Control this Feature?
If the company keeps reasonable control of its finances and knows exactly how much working capital it has, it can:
Know the best time to buy and the deadlines it can take — avoiding mismatches in payments and receipts.
- Pay short-term bills to keep cash positive
- Keep asset accounts and liability accounts in proper balance
- Meet the needs of conducting operational activities
- Allow the growth of wealth in the company in the long term
- What are the risks of poor working capital control
Operational risks increase when working with low working capital, leaving the company susceptible to negative cash, which compromises the smooth running of activities.
With inefficient working capital management and inadequate financial planning, entrepreneurs often resort to banks and take out loans and financing to cover the business’s debts. However, by resorting to this strategy, businesses are vulnerable to banks and tend to negotiate in an unfavorable position; they are forced to agree to adverse terms and contracts, which will place the company in an even more damaging situation.
How to Calculate Working Capital?
Before performing any calculations, you must have some information at the tip of your pencil. The teller and bank accounts represent the most important resources as they are concentrated and immediately available to the company.
Accounts receivables are also included in the working capital calculation. They are the result of installment sales, in which payment occurs later. The greater the value and the term you offer the consumer, the more resources the company will need to cover accounts receivable while this money does not enter the box
Another essential account that needs to be considered is the value of the stock, as its modification is linked to changes and needs in the consumer’s profile in the market. As investment in inventory demands a large number of financial resources, since changes involve constant investments and an increase in the number of items available, it is necessary to pay attention to the resources available for this – otherwise, the business runs the risk of incurring debt.
For the calculation of working capital, there is a simple formula that you can adapt for any business:
CGL = AC – PC
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