4.1.2. Summary: Net Capital
Once you have a total amount of all haircuts taken, deduct that from the tentative net capital amount. The result—at last—will be the firm’s net capital.
Let’s see those formulas again.
net capital = net worth + subordinated debt – non-allowable assets – haircuts
net worth = assets – liabilities
tentative net capital = net worth + subordinated debt – non-allowable assets
net capital = tentative net capital – haircuts
Example: XYZ Brokerage Inc. carries the accounts of many customers and has custody over their assets. The following is selected balance sheet information from XYZ Brokerage.
|
Assets |
|
|
Cash |
$100,000 |
|
Exchange membership fee |
$40,000 |
|
Customer debit balances |
$280,000 |
|
Aged fails to deliver—marked to the market |
$10,000 |
|
Securities inventory—marked to the market |
$200,000 |
|
Prepaid expenses |
$70,000 |
|
Total Assets |
$700,000 |
|
Liabilities |
|
|
Accounts payable |
$25,000 |
|
Customer credit balances |
$175,000 |
|
Stock loaned |
$45,000 |
|
Bank loans |
$130,000 |
|
Subordinated loans |
$250,000 |
|
Total Liabilities |
$625,000 |
Step 1: Calculate net wort