Self-Funding Concept

Self-funding corresponds to the financial funds released by the company’s own activity an available as funding source for the performance of investments. This must always be the first funding source of any company since, comparatively to funding through foreign capital, doesn’t represent funding costs or financial autonomy loss and, comparatively to funding by equity raise doesn’t represent increased effort of investment from the shareholders. The remaining options should only be taken into account when the released funds are not enough to finance the desired investments or when its use raises too much the liquidity risk.

To calculate the amount available by self-funding from the accountancy maps is generally used the following formula:

SF_t = P_t-1 + DA_t-1 + Aj_t-1

In which: t = current year; t-1 = last year; SF = self-funding; DA = exercise depreciation and adjustment;

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.