Series 14: 4.1.2. Summary: Net Capital

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