*Valued at cost
Ratio of real to total assets = $95,000/$100,000 = .95
Ratio of real to total assets = $30,000/$155,000 = .19
Conclusion: when the firm starts up and raises working capital, it will be
characterized by a low ratio of real to total assets.
When it is in full production, it
will have a high ratio of real assets.
When the project "shuts down" and the firm
sells it off for cash, financial assets once again replace real assets.
Mutual funds accept funds from small investors and invest, on behalf of these
investors, in the national and international securities markets. Pension funds accept
funds and then invest, on behalf of current and future retirees, thereby channeling
funds from one sector of the economy to another.
Venture capital firms pool the
funds of private investors and invest in start-up firms.
Banks accept deposits from
customers and loan those funds to businesses, or use the funds to buy securities of