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The Finance Book by Si Hussain, Stuart Warner

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15 Capital and reserves

‘I love the creativity. I love the ability to create a capital structure that is appropriate for a company, no matter what field it happens to be in.’

Henry Kravis, US businessman and co-founder KKR & Co.

In a nutshell

Capital and reserves is the owners’ ‘equity’ in a business. It is equivalent to net assets in a balance sheet.

(Share) capital reflects capital contributions made by investors.

Reserves can be of two types:

  1. ‘Revenue’ reserves – profits set aside for specific or general purposes.
  2. ‘Capital’ reserves – balances set aside because of regulatory or accounting requirements.

The distinction between capital and revenue reserves is important in law. Share capital plus capital reserves represent the creditors’ ...

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