uncalled capital?

Question

what is the impact of the uncalled capital on the following items?:
1- equity capital
2-financial risk measurement
3-Requirement for Return On Equity

thnx;

Answer 1

I'll try to add a bit of information to this but, like Barry, this is not really my area. I only deal with very small company accounts so this sort of situation rarely arises.

Uncalled capital consists of shares that have been issued but the shareholders have not been asked for the money. As such it is included in the share capital section of the balance sheet with a correspoding entry in current assets as a debtor.

The equity capital is therefore enhanced by the uncalled capital.

I'm not sure how this would affect financial risk management. The amount not called up could be demanded at any time so is probably more certain than trade debtors but not as good as actually having the cash in the bank.

I suspect the return on equity calculations will use the equity capital figure shown in the balance sheet (which includes the uncalled capital). The return could well then be lower than the return on the actual capital employed. You need to check how this calculation is made in practice to be sure.

Sorry if that's not much help.

Answer 2

No one else has answered so I might be able to help but not that much. I am pretty sure that uncalled capital does not have to be shown on the balance sheet or at least fully. This would have obvious affects on the three factors that you have above because all of the risk calculations and equity calculations will be different to the what they would be if these figures were shown on the balance sheet.

Are you familiar with tax shields etc. You know when there is a tax advantage to having a higher rate of debt capital to equity capital because interest on debts can be written off against taxable profits. This is corporate banking and it gets cutthroat are you a student?

Like I said if there is a disadvantage in having a higher level of equity capital due to the tax shield then by not showing some of the equity capital on the balance sheet or at least showing it in a different way it could make the business look more profitable and also affect it is relative return and risk.

That might help I am a little bit rusty in this area I didn't like it that much and I studied it a long time ago. You may want to check what I put I think that it is correct but it might be a bit iffy.

At least now you know where you should be looking. I will do a quick search. I will make another post in a minute.

Yeah I was right to get a better explanation follow this link http://en.wikipedia.org/wiki/Tax_shield

It is a good simple explanation and very clear. Also in relation to risk you might want to investigate the CAPM and APT (Capital Assets Pricing Model and Abitrage Pricing Theory) This will help to explain the affect that equity has on risk.

http://en.wikipedia.org/wiki/Capital_asset_pricing_model

and

http://en.wikipedia.org/wiki/Arbitrage_pricing_theory

I can't believe that no one else has answered yet I guess they need someone with some high level financial knowledge. Are you a student, if so I might be able to help you in the future. I work as a freelance macro economist and specialize in pensions and tax. I hope that I answered your question properly it is not my area you can look at my website morganisteconomics.org.uk good luck.

Answer 3

Uncalled Capital

Answer 4

2

Answer 5

1