Notes

The Accounting Job Of The Working Capital Table
A Capitalization Table provides a detailed analysis of the percentages of ownership, equity Dilution, and net tangible equity (the difference between tangible equity and net tangible equity) of a business during different stages of growth. The table shows a business's capital structure at various stages of growth. It may serve as a guide for future decisions regarding financing and capital budgeting.

As capital funds are raised for a business, the business is often presented with a Capitalization Table showing its Net Effective Market Cap, the highest and lowest possible figure that can be raised through the raising of capital. startups will base a funding decision on the attractiveness of the business's Net Effective Market Cap. The higher the figure, the more valuable the stock. It is also attractive to funders if the capital amount generated is enough to justify significant goodwill and interest expenses.

The purpose of the capital table is to provide a shareholder with a simple picture of a businesses total equity and ownership structure. Equity and voting rights are listed in the table in the same order that they are issued, i.e., first in line and then alphabetically. Common equity holders are shown in the capital structure portion of the table along with common shareholders and partners. Funders do not need to include alternative capital or business development loans in the financing amounts as those items are reported on the appropriate ingredient list for a particular cap table.

As funders fund the companies with capital, these firms are sometimes divided into two categories. One category represents early stage venture capitalists who usually own little or no equity in the business and are not involved in the day-to-day operations. These early stage investors normally have little or no experience and are not concerned with the long term viability of the company or its ability to attract customers and suppliers. They are interested only in the short term increase in the companies stock price. Most of these early stage investors use their funds to make large purchases of shares of stock to increase their own equity.

The second category, the total capital table 1 reports selected assets and liabilities in the companies total equity. This information is based on the total value of the acquired depreciated value plus purchase price less sales expense less outstanding balance. The number of outstanding units is shown in the capital structure section of the total capital table 1 reports. Investors can see how much value their investment has generated by subtracting the current value of the stock from the total amount they paid for the stock.

The third type of table is the cash flow statement. This type of table is used for the funding of short term cash needs. It provides an easy reference that will help funders calculate the amount of cash that will be needed during the year to fund short term cash needs. The cash flow statement includes three categories of receivables: sales, inventory, and working capital. The amount of cash that can be generated through the working capital table is equal to the gross selling price less net cash inflows less net cash flows to support the inventory. There are specific formulas for funding these three categories.

The fourth type of capital structure, the operating table means that it reports the operating profits and costs. The categories of items included in the operating profit are revenues, expense, net income, gross profit, net income per quarter, and diluted weighted average revenue per quarter. The operating table also includes depreciation expense, cost of goods sold, and property and equipment depreciation. The last category, the non-operating table means that it does not include goodwill or other non-specific intangibles. It only reports the net effect of financing activities and change in accounts receivable and inventory.

In this article we discussed the different types of capital structures and their description, purpose, functions, limitations, advantages and disadvantages as well as their definition in accounting literature. We discussed the four types of capital structures as presented in the current version of the annual financial statement and explained how to interpret each of them. Now startups have a basic understanding about the capital structure and the function of the working capital table in accounting.
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