If you want to understand how the administrative world works, then it is essential that you know well what the immobilization of equity is.
These more technical terms may seem very scary to outsiders, but they are all there to help us understand exactly how the business world and the administrative world in general works. So stay with us and understand with this article all about the immobilization of equity.
What this article covers:
What is equity immobilization?
To understand exactly what equity immobilization is, we must have a good understanding of a company’s financial resources. In particular, the elements that make up the your business balance??
A company does not depend only on what it earns from the sale of its services and products to survive. In fact, a company is a complex organism that depends on the smooth running of numerous factors to survive and grow in the market. One of these factors is the good use of the company’s capital, something that is intrinsically linked to the immobilization of shareholders’ equity.
Equity immobilization can be easily understood as a portion of a company’s financial assets that are not being invested in its own structure, equipment and other assets for its own use.
How does equity immobilization work?
As we have already commented, a company does not grow and sustains itself only with its profit. In fact your financial assets transcend your profit.
To get an idea, assets can be divided into at least two types: current and non-current assets. While current assets are generally monetary amounts that can be used immediately by the company, non-current assets are your assets that are also part of your inventory.
Among these so-called non-current assets are assets used by the company such as cars, office supplies, computers and others necessary for its daily activity.
The immobilization of equity exists precisely for the correct analysis of how the profit of a company is being used for the investment in itself and the improvement of its assets.
What features can I use?
If a company has its assets divided into two, current and non-current, which ones could it invest in its permanent assets, thus avoiding the immobilization of equity?
This is a valid question and it is at the heart of the question of what is the immobilization of equity. Among the resources that a company can use are not only the monetary amount it immediately holds in the value of the objects it currently sells, but also accounts it will receive soon, bonds it can easily redeem and all the monetary amount it currently have on hand.
What are the degrees of immobilization?
The immobilization of equity is such an important subject that there is even a special calculation to identify it. This calculation is done as follows:
- Fixed Assets = (Non-Current Assets/Current Assets) x 100.
With this calculation we have at hand the exact values of the so-called “degree of immobilization”. This degree of immobilization varies greatly from company to company, but a warning is important here. The result that gives the degree of immobilization should not be taken literally, each company and institution works with some dynamics where a certain degree of immobilization of equity is appropriate or not.
So although the immobilization of equity is very important, it is a very relative result from company to company. Now that you understand exactly what the immobilization of equity is, be sure to calculate your company’s and have a clearer idea of your financial life!