Financial Decision Making

Called up share capital is the value of the issued shares in an organisation which are not fully paid, and whose holders are called upon to pay for them, or if they have only paid part then they are called upon to pay the balance. For example, if there were 100 x  1 shares issued and the  100 had been paid to cover the cost of these shares, there would be no called up share capital. It is the total amount of issued capital for which the shareholders are required to pay.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

This may be less than the subscribed capital as the company may ask shareholders to pay by installments (Companies House, 2011). Referring to the Consolidated Balance Sheet (app. 1), Next Plc does not have any called up share capital. ii) Share Premium Account The share premium account balances the difference between the par value of a company’s shares and the amount that the company actually received for newly issued shares. Retained earnings is a term used to describe the amount of profit kept by the company rather than paid as dividends.

Retained earnings of  1,782. 6m (as at 29 January 2011) is shown on Next Plc’s Consolidated Balance Sheet. This is accumulated in that each accounting period it is increased by the retained profit from the Profit and Loss Account for that period. Dividends must be paid out of the reserves of a company that are available as distribution from profit (distributable reserves), normally representing the accumulated profits of the business less losses meaning that a low accumulated retained earnings figure limits dividend payments (Lewis et al, 2004).

This is why the issue of new shares to existing shareholders at no charge is taken to be a sign of confidence – there is no danger that reducing distributable reserves will cause a cut in dividends thereby leading investors to believe there is plenty of money to pay dividends. iv) Consolidated It can be seen that both the Balance Sheet and Statement of Comprehensive Income of Next Plc are noted as being “consolidated”.

This means that they are financial statements which factor the holding company’s subsidiaries (including Next Sourcing and Lipsy) into its aggregated accounting figure. It is a representation of how the holding company (Next Plc) is doing as a group (Elliot, 2007). The consolidated accounts should provide a true and fair view of the financial and operating conditions of the group. v) Non Controlling Interest Ordinary shares can be known as common stock. Controlling interest is a term used to describe when the parent company owns a majority of the common stock.

Non controlling interest (which is also known as minority interest) therefore describes the rest of the common stock that other shareholders own. It is an equity ownership stake in a corporation where the held position gives the investor no influence on how the company is run (Wolfgang et al, 2011). Non controlling interest belongs to other investors and is reported on the consolidated balance sheet of the owning company (as is the case for Next Plc) to reflect the claim on assets belonging to other, non-controlling shareholders.

Also, non controlling interest is reported on the Consolidated Statement of Comprehensive Income as a share of profit belonging to minority shareholders. Part C – Ratios Using the Consolidated Statement of Comprehensive Income and Consolidated Balance Sheet, ratios can be calculated to give a potential investor a view of the profitability, liquidity, solvency and value of Next Plc so that they might make a better more well informed decision (Bull, 2008).