Understanding Formulas Used
Formula To Convert Savings Into Share Percentages
Let’s assume that the entire group has 4 members. And below, this how all the 4 members have saved their money over a certain period of time.
- Member A saved a total of: 370,500/-
- Member B saved a total of: 163,200/-
- Member C saved a total of: 421,100/-
- Member D saved a total of: 45,200/-
When we add all these savings, we get a total of: 1,000,000/-. Now, let’s use our formula above on every member starting with Member A and see their percentages of shares on the Company’s Equity.
Example to demonstrate this formula
Member A saved 370,500/- and it turns to be = 37.05% of Shares on the Company’s Equity
If we apply the same formula on other members based on their savings;
- Member B, gets = 16.32% of shares
- Member C gets = 42.11% of shares
- Member D gets = 4.52% of shares
Now, if we add all the members share percentages, we get a total of 100%. This means accuracy in shares allocation based on one’s savings.
Note This: Because I wanted to encourage members to invest based on their capacities and benefit based on their inputs, we had to convert every member’s savings into shares and then distribute profits based on the number of shares a member holds.
Formula To Share Profits Based On One’s Percentage Of Shares
In the previous example, we have seen that all the 4 members saved a total of 1,000,000/- in a certain period of time. Let’s assume that the company invested those savings and made profits of 5,000,000/-.
Now, this is how profits will be distributed into members based on every member’s savings culture using the formula shown above. Let’s start with Member A and see how much he’ll get based on his contribution.
Example to demonstrate this formula
Member A contributed 370,500/- (37.05% Shares) and now on the profits the company has made, he gets = 1,852,500 /- of Profits as calculated above.
If we apply the same formula on other members based on their savings;
- Member B contributed 163,200/- (16.32% of shares) now he gets = 816,000 /- of profits.
- Member C contributed 421,100/- (42.11% of shares) now he gets = 2,105,500 /- of profits.
- Member D contributed 45,200/- (4.52% of shares) now he gets = 226,000 /- of profits.
If we add all the profits each member has got, we get a total of 5,000,000/- which means; our formula is proven to be accurate in terms of equality.