Financing from the equivalent of provisions

Financing from provisions is a form of Internal financing, from which the expense for provisions is offset immediately, but the payments are only made in later periods. During the period in between, the company can dispose of the provisions, provided that the equivalent value has been received through the sales process. It follows that the provisions are more valuable from a financing point of view, the longer they are available to the company.

short time provision

Short-term provisions are of subordinate importance for financing, as they are quickly dissolved. Medium-term provisions, e.g. B. for litigation risks, guarantee obligations, impending losses from pending transactions, are to be assessed somewhat more favorably for the financing. However, long-term provisions are significant for financing, in particular pension provisions, which have the following characteristics:

· They are borrowed capital that is formed on the basis of voluntary or contractually assumed company pension obligations to employees from profit shares and a Pension fund is added in order to be able to meet these obligations when due.

· They are not only available to the company as debt capital in the long term, but often also to a considerable extent.

Provision rates

If a company undertakes to provide its employees with a retirement pension, provisions are to be formed from the year in which the commitment is made (Section 249 of the German Commercial Code). The expenses for the retirees take place much later. The calculation of the annual provision rates for pensions must be based on actuarial principles.

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