Working production assets- this is the part of working capital that is consumed in each production cycle and the cost of which, in contrast to fixed production assets fully transferred to newly created products (works, services).
Natural and material content revolving funds are objects of labor that are in production reserves (raw materials, basic and auxiliary materials, fuel, etc.) and entered into the production process, the costs of future years for development new products and improvement of technology, low-value and wearable items, the cost of which does not exceed 10 thousand rubles. or whose service life is less than 12 months, regardless of cost.
Circulation funds- these are funds that ensure the continuity of the production process and sales of products (works, services) of the enterprise. They are used to service the circulation sector and conduct supply and sales activities.
Circulation funds consist of products ready for sale, shipped products for which documents have not been transferred to the bank for payment or are in transit, accounts receivable and cash in hand, in bank accounts and in settlements necessary for the purchase of raw materials, materials, fuel, etc., payment of wages.
The physical content of working capital is studied on the left side of the balance sheets of enterprises, which is called an asset. Hence the individual elements of working capital are called assets .
Funds advanced for the formation of working capital are studied on the right side of the balance sheets, called liabilities. Hence, individual sources of working capital are called liabilities .
Working capital is generated from two main sources:
1) own, that is, funds allocated to the enterprise during its formation and replenished in the future,
2) borrowed funds (loans).
Own working capital- this is part of the working capital, which characterizes the property independence and financial stability of the enterprise. They are formed primarily through deductions from profits.
Borrowed funds- this is a source of working capital formation; funds received in the form of bank loans (credits) and from other sources; are temporarily at the disposal of the enterprise and are used along with its own working capital.
The main source of financing for the increase in own working capital is the profit of the enterprise. The additional need for working capital, due to temporary needs, is provided by short-term bank loans.
In addition to their own and borrowed money in the turnover of enterprises are constantly involved funds- accounts payable of all types.
Circulation of working capital The enterprise includes three stages:
At the first stage, working capital is transferred from monetary form to commodity form (industrial reserves and labor are purchased),
On the second - production reserves with the participation of tools and work force are transformed into finished products (works, services),
In the third stage, finished products (works, services) are sold, funds are released and again take monetary form.
The circuit is considered complete when funds for sold products are credited to the company's bank account. The first and third stages of the circuit belong to the sphere of circulation, the second - to the sphere of production. The continuity of the production process requires the availability of working capital in each of the three stages.
Average annual cost of working capital- calculated as average chronological, the entry and disposal of working capital coincides with the middle of the month:
Where OS n.g., OS k.g.- the cost of working capital at the beginning and end of the year, respectively,
OS i- cost of working capital on the 1st day i th month, starting from February ( i= 2) and ending with December ( i = 12).
The efficiency of using working capital of an enterprise is characterized by such indicators as working capital turnover and turnover ratio.
Working capital turnover- this is the duration of their full cycle, completed from the first stage (acquisition) to the last (sales) finished products, works, services) in days:
Where OS Wed- average for the period T balance of working capital,
R- sales revenue for the period T,
T- duration of the period, days.
Example. The balances of working capital for the enterprise amounted to: as of 1.01 - 110 thousand rubles, as of 1.02 - 115 thousand rubles, as of 1.03 - 125 thousand rubles, as of 1.04 - 130 thousand rubles. Product sales for the first quarter amounted to 900 thousand rubles. Calculate working capital turnover.
Solution. Average working capital balances for the period:
One-day revenue:
Working capital turnover:
Working capital turnover ratio- this is the number of revolutions made by working capital for a given period:
Example. For the conditions of the previous example, calculate the working capital turnover ratio.
Solution. Turnover ratio:
that is, during the quarter the company’s working capital made 7.5 turnovers.
Turnover indicators are related by the ratio:
In order to increase the efficiency of functioning of working capital, enterprises carry out not only their accounting, but also standardization, for which they calculate:
1) norms of working capital reserves in days,
2) working capital standards in monetary terms.
Standard is a technical and economic indicator that reflects the maximum value of a parameter and the level of resource use.
Working capital ratio- this is the minimum amount of funds required by the enterprise (firm) to satisfy the total need for working capital. IN general view The calculation of the standard for an individual element of working capital can be performed using the formula:
Where BUT- standard of a separate element of working capital,
ABOUT- turnover for a given element for a period (for example, material consumption for a year, quarter, month, etc.),
T- duration of the period in days (a year is taken to be 360 days, a quarter is 90 days, a month is 30 days),
N- the working capital stock norm for this element in days,
FROM- one-day consumption of this element.
Example. According to the cost estimate for the year, the need for materials is 720 thousand rubles. The inventory rate is 15 days (that is, the material must be delivered 15 days before it goes into production). Calculate the working capital standard for materials.
Solution. One-day material consumption:
Working capital standard for materials:
This means that during the year the enterprise must maintain a supply of materials at the level of 30 thousand rubles.
In the economic literature, a grouping of working capital of an enterprise is accepted, according to which working capital is divided:
1) by turnover area:
a) working production assets(sphere of production),
b) circulation funds(sphere of circulation);
2) by element of working capital for:
a) productive reserves(raw materials, materials, fuel, spare parts, low-value and wearable items),
b) costs of unfinished products(work in progress, deferred expenses),
c) finished products(products in warehouses, shipped products),
d) cash and settlement funds(cash, accounts receivable and other settlements);
3) according to the scope of standardization for:
a) standardized(productive reserves),
b) non-standardized(cash and settlement funds);
4)by source of formation to:
a) own,
Working capital is the basis of the activity of any enterprise. Without this article, production of products is impossible, since raw materials, materials and semi-finished products are part of working capital.
Working capital of an enterprise - what is it?
Working capital of an enterprise is a part of the property that is once involved in the production process, immediately transfers the value to the cost of manufactured products, requires restoration after each production cycle, and is characterized by a short-term period of use of up to 12 months.
Working capital is also called by mobile means or working capital. They represent the means of labor - the resources from which products are made. Such funds are expressed in value(money) or natural(pieces, kilograms, etc.) meaning, they require constant updating.
Composition and structure
All current assets items are reflected in the second section of the balance sheet. Working capital can be divided into tangible and intangible assets.TO material include inventories (raw materials, supplies, semi-finished products, fuel and energy for production needs), work in progress, finished products, intangible– accounts receivable, cash, short-term financial investments. Each item is indicated in value terms.
Structure working capital implies the share of each item in total amount working capital. Enterprises strive to minimize the share of accounts receivable and inventories in general structure capital.
Performance indicators
Turnover ratio reflects the number of turnovers of working capital that must be made to ensure a given revenue. The indicator can be found as follows:
K rev =TR/S rev,
- where K rev is the turnover ratio,
- TR – revenue (income in value terms),
- S ob – average cost of working capital.
- The revenue is as follows:
- TR=P*Q,
- where P is the unit price,
- Q – volume of products produced in pieces.
Data for calculating revenue are reflected in the income statement.
The average cost of working capital can be found using the following formula:
S about = S about ng + S about kg,
Data for calculating the average cost of working capital can be found in balance sheet.
Turnover rate– shows how many days one revolution takes place.
T o =T/K about,
- T o – turnover rate,
- T – period (number of days),
- K rev – turnover ratio
Video - indicators of the efficiency of using working capital of an enterprise:
Analysis of enterprise working capital
For the purposes of analyzing working capital, they are divided into standardized and non-standardized.
TO normalized includes inventories, work in progress and finished goods. These values are calculated and their value is planned.
TO irregular include cash - this indicator cannot be accurately planned.
Analysis of working capital allows you to divide capital into groups according to liquidity - the ability to turn into money. Cash has absolute liquidity, the rest has high and medium liquidity (that is, it takes some time for, for example, reserves to turn into cash).
Ways to improve efficiency
There are several methods for optimizing the use of working capital of an enterprise for each item of capital. In case of stocks, the following methods can be used:
- just-in-time delivery;
- reducing the duration of the production cycle;
- acceleration of inventory turnover.
Reducing the duration of the production cycle is possible by introducing additional capacities (machines, workplaces), reducing downtime of equipment and workers.
A faster turnover period will reduce the amount of working capital and free up cash.
To minimize the amount of accounts receivable, the following solutions are possible:
- system of discounts for timely payment;
- attraction of factoring companies;
- penalties for late payment.
When concluding a contract for the supply of products, it is necessary to indicate both positive (discounts) and negative (fines) incentives for the buyer.
In case of non-repayment of funds, it is possible to sell the receivables to a factoring company, which will repay the buyer's debt. This method allows you to return only part of the debt, but in case of bad debts this method is effective, since it is better to receive part of the money than to receive nothing.
Return on working capital
Return on working capital – relative indicator activity - reflects how much profit 1 ruble invested in the working capital of the enterprise brings.
Profitability = Profit, rub. / average cost working capital, rub.
The average amount of working capital of an enterprise can be found using the following formula:
S about = S about ng + S about kg,
- where S about ng is the amount of working capital at the beginning of the year,
- S about kg – the amount of working capital at the end of the year.
Typically, the profitability of an enterprise's working capital is calculated based on the profit from sales. Profit from sales is recorded in the financial results statement of the enterprise.
In general, working capital is an important part of an enterprise's activities. It is necessary to monitor their value and analyze the effectiveness of use.
Video - what are working capital of an enterprise and ways to improve their use:
Discussion (13)
Yes, the effective use of working capital of any enterprise is the most important thing that ultimately affects the well-being of the entire company. As they say, you need to know how to spend your money.
The efficiency of using working capital and their profitability depends entirely on the speed of their turnover, i.e. bought raw materials - spent on production - sold the products - returned the money spent on buying raw materials at a profit, spent a month on all this. The lower the total turnover in days, the more effective the use.
The efficiency of using the working capital of an enterprise is greatly influenced by the provision of the enterprise with standardized working capital. These are the means, usually raw materials, that should ensure uninterrupted production of products depending on the rhythm of supplies. Their mandatory presence must ensure the production process a certain amount of time in days. For one type of raw material there is a three-day supply, for another - ten. Procurement for use will worsen the use of working capital.
When inflation comes with the prefix hyper, it is very difficult to correctly calculate reserves of raw materials, and the correct investment of working capital in it. Since as prices rise, demand also falls and you can stock up on raw materials during the off-season, but during the season you simply cannot sell the product due to changes in consumer demand, you made red pillows, for example, but blue ones are in fashion. Or another factor, due to inflation, people began to buy essential goods, and your furniture was put in the tenth place. There are many variables and depending on the type of business you need to make informed decisions.
Good afternoon. My personal opinion is that working capital needs to be replenished to increase production or purchase goods. From this, profits will increase. Every month you need to invest 10% of your income in working capital.
And now the issue of standard reserves is once again becoming very relevant. On the one hand, the excess standard pulls production indicators down and reduces work efficiency. But on the other hand, prices are rising and will continue to rise for at least another six months. The natural desire is to purchase materials at affordable prices. But loans bite! And quite strongly! So you have to estimate and compare everything a hundred times. In short, these are scissors. To cut off the head of real business
I will share my experience. I have accounts receivable, but only verified buyers, those who repay the debt within a month. I work with the rest only on prepayment, no matter what profitable terms they didn't offer. My main trade is in the summer, so in winter there is not enough working capital, and in winter the main purchase of goods occurs, because... prices are significantly lower. That's why I usually take it in winter short term loan. Which more than pays for itself in the summer.
Working capital is the life of any enterprise. If you do not have your own working capital, this will quickly lead to the collapse of any enterprise. When attracting working capital, it is very important to calculate the profitability of such attraction. The main thing is that the profit covers losses on loans and increases working capital resources and grows in the enterprise money supply with absolute liquidity.
You can easily save money by using working capital, since in my opinion they play a big role in managing an enterprise. By controlling production costs, you can make greater profits. By reducing the cost of raw materials and purchasing them at the lowest cost, you can thereby increase production volume, which is very important for both large and small enterprises.
In fact, working capital in a number of our modern business areas plays a much larger role than the main ones. In trade, for example, the main ones are only racks, which can be all. And rent, delivery (usually by a transport company), purchase of the product itself - all this is just a turnover. In a small business, the ratio of fixed and working capital is usually less than or around one. That is, there are more working capital than fixed assets.
And if in the 90s there was no talk about rationing or particularly efficient use, now the opposite is true. Banks issue loans much more willingly specifically for working capital, because they are much more liquid. And there is a high probability that they will get their money back. For me, loans should be taken specifically for working capital, and the main funds should be raised at the expense of one’s own debt securities. The current insolvency crisis is precisely due to a misunderstanding of the purposes of a business loan. Equipment and all the “essentials” were borrowed, but no one thought about how to turn around and how to generate turnover.
In general, I advise those starting a business to make the balance in favor of working capital as much as possible. It’s liquid even if “it doesn’t work! You can always cover it at the lowest cost.
Working capital- this is a set of funds advanced to create circulating production assets and circulation funds that ensure the continuity of the company.
Composition and classification of working capital
Revolving funds- these are assets that, as a result of its economic activity completely transfer their value to the finished product, take a one-time part in the process, changing or losing their natural material form.
Working production assets enter production in their own in kind and are completely consumed during the manufacturing process. They transfer their cost completely to the product they create.
Circulation funds associated with servicing the process of circulation of goods. They do not participate in the formation of value, but are its carriers. After completion, production of finished products and their sale, the cost of working capital is reimbursed as part of (work, services). This creates the possibility of systematically resuming the production process, which is carried out through the continuous circulation of enterprise funds.
Structure of working capital is the relationship between separate elements working capital, expressed as a percentage. The difference in the structures of working capital of companies is determined by many factors, in particular, the characteristics of the organization’s activities, business conditions, supply and sales, location of suppliers and consumers, and the structure of production costs.
Working production assets include:- (raw materials, basic materials and purchased semi-finished products, auxiliary materials, fuel, containers, spare parts, etc.);
- with a service life of no more than one year or a value of no more than 100 times (for budgetary organizations- 50 times) installed minimum size wages per month (low-value wearable items and tools);
- unfinished production and self-made semi-finished products (labor items that have entered the production process: materials, parts, components and products that are in the process of processing or assembly, as well as self-made semi-finished products that have not been fully completed by production in some workshops of the enterprise and are subject to further processing in other workshops of that the same enterprise);
- Future expenses(immaterial elements of working capital, including costs for the preparation and development of new products that are produced in a given period, but are allocated to products of a future period; for example, costs for the design and development of technology for new types of products, for the rearrangement of equipment).
Circulation funds
Circulation funds— enterprise funds operating in the sphere of circulation; an integral part of working capital.
Circulation funds include:- enterprise funds invested in finished product inventories, goods shipped but not paid for;
- funds in settlements;
- cash in hand and in accounts.
The amount of working capital employed in production is determined mainly by the duration of production cycles for the manufacture of products, the level of technology development, the perfection of technology and labor organization. The amount of circulating media depends mainly on the conditions for the sale of products and the level of organization of the supply and marketing system.
Working capital is the more mobile part.
In every Circulation of working capital goes through three stages: monetary, production and commodity.
To ensure a smooth process at the enterprise, working capital or material values, awaiting their further industrial or personal consumption. Inventories are the least liquid item among current asset items. The following methods of inventory valuation are used: for each unit of purchased goods; By average cost, in particular, according to the weighted average cost, moving average; at the cost of the first purchases; at the cost of the most recent purchases. The unit of accounting for working capital as a material inventories a party, a homogeneous group, a nomenclature number perform.
Depending on their purpose, inventories are divided into production and commodity. Depending on the functions of use, stocks can be current, preparatory, insurance or warranty, seasonal and carryover.- Safety stocks- a reserve of resources intended for the uninterrupted supply of production and consumption in cases of a decrease in supplies compared to those provided.
- Current stocks— stocks of raw materials, materials and resources to meet the current needs of the enterprise.
- Preparatory supplies- Cycle-dependent inventories are required if raw materials are to undergo any processing.
- Carryover stocks- part of unused current inventories that are carried over to the next period.
Working capital is located simultaneously at all stages and in all forms of production, which ensures its continuity and uninterrupted operation of the enterprise. Rhythm, coherence and high performance largely depend on optimal sizes working capital(working production assets and circulation funds). Therefore, the process of rationing working capital, which relates to current financial planning at the enterprise, is of great importance. Rationing working capital is the basis for rational use household assets companies. It consists in developing reasonable norms and standards for their consumption, necessary to create constant minimum reserves and for the uninterrupted operation of the enterprise.
The working capital standard establishes the minimum estimated amount that is constantly required by the enterprise to operate. Failure to fill in the working capital standard may lead to a reduction in production, failure to fulfill production program due to interruptions in production and sales of products.
Standardized working capital— the size of inventories, work in progress and balances of finished products in warehouses planned by the enterprise. Working capital stock norm is the time (days) during which OBS are in production inventory. It consists of the following stocks: transport, preparatory, current, insurance and technological. Working capital standard is the minimum amount of working capital, including cash, necessary for a company or firm to create or maintain carry-over inventories and ensure continuity of work.
Sources for the formation of working capital can be profit, loans (bank and commercial, i.e. deferred payment), share (authorized) capital, share contributions, budget resources, redistributed resources (insurance, vertical management structures), accounts payable, etc.
The efficiency of using working capital affects financial results activities of the enterprise. When analyzing it, the following indicators are used: the availability of own working capital, the ratio between own and borrowed resources, the solvency of the enterprise, its liquidity, turnover of working capital, etc. Turnover of working capital is understood as the duration of the sequential passage of funds through individual stages of production and circulation.
The following indicators of working capital turnover are distinguished:
- turnover ratio;
- duration of one revolution;
- working capital load factor.
Funds turnover ratio(turnover speed) characterizes the amount of revenue from sales of products by the average cost of working capital. Duration of one revolution in days is equal to the quotient of dividing the number of days for the analyzed period (30, 90, 360) by the turnover of working capital. The reciprocal of the turnover rate shows the amount of working capital advanced per 1 ruble. revenue from product sales. This ratio characterizes the degree of utilization of funds in circulation and is called working capital load factor. The lower the working capital load factor, the more efficiently working capital is used.
The main goal of managing enterprise assets, including working capital, is to maximize profit on invested capital while ensuring stable and sufficient solvency of the enterprise. To ensure sustainable solvency, the enterprise must always have a certain amount of money in its account, which is actually withdrawn from circulation for current payments. Part of the funds should be placed in the form of highly liquid assets. An important task in terms of managing working capital of an enterprise is to ensure an optimal balance between solvency and profitability by maintaining the appropriate size and structure of current assets. It is also necessary to maintain an optimal ratio of own and borrowed working capital, since the financial stability and independence of the enterprise and the possibility of obtaining new loans directly depend on this.
Analysis of working capital turnover (analysis of the organization’s business activity)
Working capital- these are funds advanced by organizations to maintain the continuity of the production and circulation process and returned as part of the proceeds from the sale of products in the same monetary form with which they began their movement.
To assess the efficiency of using working capital, working capital turnover indicators are used. The main ones are the following:
- average duration of one revolution in days;
- the number (number) of turnovers made by working capital during a certain period of time (year, half-year, quarter), otherwise - the turnover ratio;
- the amount of employed working capital per 1 ruble products sold(working capital utilization factor).
If working capital goes through all stages of the circulation, for example, in 50 days, then the first turnover indicator (the average duration of one turnover in days) will be 50 days. This indicator approximately characterizes the average time that passes from the moment of purchasing materials to the moment of sale of products made from these materials. This indicator can be determined by the following formula:
- P is the average duration of one revolution in days;
- SO - average balance of working capital for the reporting period;
- P - sales of products for this period (less value added tax and excise taxes);
- B - number of days in reporting period(in a year - 360, in a quarter - 90, in a month - 30).
So, the average duration of one turnover in days is calculated as the ratio of the average balance of working capital to the one-day turnover of product sales.
The average duration of one turnover in days can be calculated in another way, as the ratio of the number of calendar days in the reporting period to the number of turnovers made by working capital during this period, i.e. according to the formula: P = V/CHO, where CHO is the number of turnovers made by working capital during the reporting period.
Second turnover indicator- the number of turnovers made by working capital during the reporting period (turnover ratio) - can also be obtained in two ways:
- as the ratio of product sales minus value added tax and excise taxes to the average balance of working capital, i.e. according to the formula: NOR = R/SO;
- as the ratio of the number of days in the reporting period to the average duration of one revolution in days, i.e. according to the formula: NOR = W/P .
The third indicator of turnover (the amount of employed working capital per 1 ruble of sold products or otherwise - the working capital load factor) is determined in one way as the ratio of the average balance of working capital to the turnover of product sales for a given period, i.e. according to the formula: CO/R.
This figure is expressed in kopecks. It gives an idea of how many kopecks of working capital are spent to obtain each ruble of revenue from product sales.
The most common is the first turnover indicator, i.e. average duration of one revolution in days.
Most often, turnover is calculated per year.
During the analysis, the actual turnover is compared with the turnover for the previous reporting period, and for those types of current assets for which the organization sets standards - also with the planned turnover. As a result of this comparison, the magnitude of the acceleration or deceleration of turnover is determined.
The initial data for the analysis are presented in the following table:In the analyzed organization, turnover slowed down, both for standardized and non-standardized working capital. This indicates a deterioration in the use of working capital.
When the turnover of working capital slows down, there is an additional attraction (involvement) of them into circulation, and when it accelerates, working capital is released from circulation. The amount of working capital released as a result of the acceleration of turnover or additionally attracted as a result of its slowdown is determined as the product of the number of days by which turnover accelerated or slowed down by the actual one-day sales turnover.
The economic effect of accelerating turnover is that an organization can produce more products with the same amount of working capital, or produce the same volume of products with a smaller amount of working capital.
Accelerating the turnover of working capital is achieved by introducing into production new technology, progressive technological processes, mechanization and automation of production. These measures help reduce the duration of the production cycle, as well as increase the volume of production and sales of products.
In addition, to speed up turnover important has: rational organization of logistics and sales of finished products, compliance with cost-saving regimes for production and sales of products, the use of forms of non-cash payments for products that help speed up payments, etc.
Directly during analysis current activities An organization can identify the following reserves for accelerating the turnover of working capital, which consists in eliminating:
- excess inventories: 608 thousand rubles;
- goods shipped but not paid for on time by buyers: 56 thousand rubles;
- goods in safe custody from buyers: 7 thousand rubles;
- immobilization of working capital: 124 thousand rubles.
Total reserves: 795 thousand rubles.
As we have already established, the one-day sales turnover in this organization is 64.1 thousand rubles. So, the organization has the opportunity to accelerate the turnover of working capital by 795: 64.1 = 12.4 days.
To study the reasons for changes in the rate of turnover of funds, it is advisable, in addition to the considered indicators of general turnover, to also calculate indicators of private turnover. They relate to certain types of current assets and give an idea of the time spent by working capital at various stages of their circulation. These indicators are calculated in the same way as inventories in days, but instead of the balance (inventory) on a certain date, the average balance of a given type of current asset is taken here.
Private turnover shows how many days on average working capital remains at a given stage of the circulation. For example, if the private turnover of raw materials and basic materials is 10 days, this means that on average 10 days pass from the moment the materials arrive at the organization’s warehouse to the moment they are used in production.
As a result of summing up private turnover indicators, we will not get an overall turnover indicator, since different denominators (turnovers) are taken to determine private turnover indicators. The relationship between the indicators of private and general turnover can be expressed by the terms of total turnover. These indicators allow us to establish what impact turnover has individual species working capital to the total turnover rate. The components of total turnover are defined as the ratio of the average balance of a given type of working capital (assets) to the one-day turnover of product sales. For example, the term for the total turnover of raw materials and basic materials is equal to:
The average balance of raw materials and basic materials is divided by the daily turnover for product sales (less value added tax and excise taxes).
If this indicator is, for example, 8 days, then this means that the total turnover due to raw materials and basic materials accounts for 8 days. If you sum up all the components of the total turnover, the result will be an indicator of the total turnover of all working capital in days.
In addition to those discussed, other turnover indicators are also calculated. Thus, the inventory turnover indicator is used in analytical practice. The number of turnovers made by inventories for a given period is calculated using the following formula:
Works and services (minus and) divided by average value under the item “Inventories” of the second asset section of the balance sheet.
Acceleration of inventory turnover indicates an increase in the efficiency of inventory management, and a slowdown in inventory turnover indicates their accumulation in excessive amounts, ineffective inventory management. Indicators are also determined that reflect the turnover of capital, that is, the sources of formation of the organization’s property. So, for example, turnover equity, is calculated using the following formula:
Product sales turnover for the year (minus value added tax and excise taxes) is divided by the average annual cost of equity capital.
This formula expresses the efficiency of using equity capital (authorized, additional, reserve capital, etc.). It gives an idea of the number of revolutions made own sources activities of the organization for the year.
Turnover of invested capital is the turnover of product sales for the year (minus value added tax and excise taxes) divided by the average annual cost of equity capital and long-term liabilities.
This indicator characterizes the efficiency of using funds invested in the development of the organization. It reflects the number of revolutions made by all long-term sources during a year.
When analyzing the financial condition and use of working capital, it is necessary to find out from what sources the financial difficulties of the enterprise are compensated. If assets are covered by stable sources of funds, then the financial condition of the organization will be stable not only for this reporting date, but also for the near future. Sustainable sources should be considered own working capital in sufficient amounts, non-declining balances of carry-over debt to suppliers on accepted payment documents, the payment terms of which have not arrived, constantly carry-over debt on payments to the budget, non-declining part of other accounts payable, unused fund balances special purpose(accumulation and consumption funds, as well as social sphere), unused balances of targeted financing, etc.
If the organization’s financial breakthroughs are covered by unstable sources of funds, it is solvent at the reporting date and may even have free funds in bank accounts, but in the near future it will face financial difficulties. Unstable sources include sources of working capital that are available on the 1st day of the period (the date of drawing up the balance sheet), but are absent on dates within this period: non-overdue debt on wages, deductions for off-budget funds(above certain sustainable amounts), unsecured debt to banks for loans against inventory items, debt to suppliers for accepted payment documents, the payment terms of which have not arrived, in excess of amounts attributed to sustainable sources, as well as debt to suppliers for uninvoiced deliveries, arrears of payments to the budget in excess of the amounts attributed to sustainable sources of funds.
It is necessary to make a final calculation of financial breakthroughs (i.e., unjustified spending of funds) and sources of covering these breakthroughs.
Analysis ends overall assessment the financial condition of the organization and drawing up an action plan to mobilize reserves to accelerate the turnover of working capital and increase liquidity and strengthen the solvency of the organization. First of all, it is necessary to assess the organization’s provision of its own working capital, their safety and use according to intended purpose. Then an assessment is made of compliance with financial discipline, solvency and liquidity of the organization, as well as the completeness of use and security of bank loans and loans from other organizations. Measures are being planned for more efficient use of both equity and borrowed capital.
The analyzed organization has a reserve for accelerating the turnover of working capital for 12.4 days (this reserve is noted in this paragraph). To mobilize this reserve, it is necessary to eliminate the reasons causing the accumulation of excess reserves of raw materials, basic materials, spare parts, other inventories and work in progress.
In addition, it should be ensured intended use working capital, preventing their immobilization. Finally, receiving payments from buyers for goods shipped to them that were not paid for on time, as well as the sale of goods held in custody by buyers due to refusal to pay, will also speed up the turnover of working capital.
All this will help strengthen the financial condition of the analyzed organization.
Indicators of the availability and use of working capital
Working capital is consumed in one production cycle, materially enters the product and completely transfers its value to it.
The availability of working capital is calculated both on a specific date and on average for the period.
Indicators of the movement of working capital characterize its changes during the year - replenishment and disposal.
Working capital turnover ratio
It is the ratio of the cost of products sold for a given period to the average balance of working capital for the same period:
To turnover= Cost of products sold for the period / Average balance of working capital for the period
The turnover ratio shows how many times the average balance of working capital was turned over for the period under review. In terms of economic content, it is equivalent to the capital productivity indicator.
Average turnover time
Determined from the turnover ratio and the analyzed time period
Average duration one revolution= Duration of the measurement period for which the indicator is determined / Working capital turnover ratio
Working capital consolidation ratio
The value is inversely proportional to the turnover ratio:
To fastening= 1 / To turnover
Consolidation ratio = average working capital balance for the period / cost of goods sold for the same period
In terms of economic content, it is equivalent to the capital intensity indicator. The consolidation coefficient characterizes the average size the cost of working capital per 1 ruble of sales volume.
Working capital requirement
The enterprise's need for working capital is calculated based on the coefficient of fixation of working capital and the planned volume of product sales by multiplying these indicators.
Provision of production with working capital
It is calculated as the ratio of the actual working capital stock to the average daily consumption or average daily need for it.
Accelerating the turnover of working capital helps to increase the efficiency of the enterprise.
TaskAccording to data for reporting year the average balance of the enterprise's working capital amounted to 800 thousand rubles, and the cost of products sold during the year at the current wholesale prices of the enterprise amounted to 7,200 thousand rubles.
Determine the turnover ratio, the average duration of one turnover (in days) and the coefficient of consolidation of working capital.
- To turnover = 7200 / 800 = 9
- Average turnover time = 365 / 9 = 40.5
- K securing collective funds = 1/9 = 0.111
During the reporting year, the average balance of the enterprise's working capital was 850 thousand rubles, and the cost of products sold during the year was 7,200 thousand rubles.
Determine the turnover ratio and the working capital consolidation ratio.
- Turnover ratio = 7200 / 850 = 8.47 revolutions per year
- Consolidation coefficient = 850 / 7200 = 0.118 rubles of working capital per 1 ruble of products sold
Cost of products sold in previous year amounted to 2,000 thousand rubles, and in the reporting year increased by 10% compared to the previous year, with a reduction in the average duration of one turnover of funds from 50 to 48 days.
Determine the average balance of working capital in the reporting year and its change (in%) compared to the previous year.
Solution- Cost of products sold in the reporting year: 2000 thousand rubles * 1.1 = 2200 thousand rubles.
Average balance of working capital = Volume of products sold / Turnover
To turnover = Duration of the analyzed period / Average duration of one turnover
Using these two formulas we derive the formula
Average balance of working capital = Volume of products sold * Average duration of one turnover / Duration of the analyzed period.
- Average balance of average in the previous year = 2000 * 50 / 365 = 274
- Average balance Total average in this year = 2200 * 48 / 365 = 289
289/274 = 1.055 In the reporting year, the average balance of working capital increased by 5.5%
TaskDetermine the change in the average working capital retention ratio and the influence of factors on this change.
K consolidation = average working capital balance / cost of goods sold
- To consolidate the concern, the base period = (10+5) / (40+50) = 15 / 90 = 0.1666
- To assign to the concern reporting period = (11+5) / (55+40) = 16 / 95 = 0.1684
Index of general change in anchorage coefficient
- = CO (average balance)_1 / RP (sold products)_1 - CO_0/RP_0 = 0.1684 - 0.1666 = 0.0018
Index of change in the consolidation coefficient from changes in the average balance of working capital
- = (SO_1/RP_0) - (SO_0/RP_0) = 0.1777 - 0.1666 = 0.0111
Index of change in the consolidation coefficient from changes in the volume of products sold
- = (SO_1/RP_1) - (SO_1/RP_0) = -0.0093
The sum of the individual indices must equal the total index = 0.0111 - 0.0093 = 0.0018
Determine the general change in the balance of working capital, and the amount of released (involved) working capital as a result of changes in the speed and change in sales volume.
- Average change in working capital balance = 620 - 440 = 180 (increased by 180)
General index of changes in the balance of working capital (CO) = (RP_1*continued 1.turnover_1 / days in the quarter) - (RP_0*continued 1.turnover_0 / days in the quarter)
- Duration of 1 revolution reporting quarter= 620*90/3000 = 18.6 days
- Duration of 1 revolution in the previous quarter = 440*90/2400 = 16.5 days
Index of changes in operating assets from changes in the volume of products sold
- = RP_1*prod.1ob._0/quarter - RP_0*prod.1ob._0/quarter = 3000*16.5/90 - 2400*16.5/90 = 110 (increase in the balance of working capital due to an increase in the volume of products sold )
Index of changes in operating assets from changes in the turnover rate of working capital
- = RP_1*cont.1ob._1 / quarter - RP_1*cont.1ob._0/quarter = 3000*18.6/90 - 3000*16.5/90 = 70
The company's assets include value expression resources that support the production process of the enterprise. Assets include:
- Non-current assets (structures, buildings, machinery and equipment, transport, etc.),
- Working capital (cash, accounts receivable, short-term investment, etc.).
Asset accounting is mandatory for most Russian enterprises. All assets are concentrated on the left side of the balance sheet and are divided according to their purpose:
- The first section of the balance sheet is presented outside current assets(fixed assets and intangible assets), which are accounted for in accordance with the residual value less depreciation (line 1100 of the balance sheet);
- The second section of the balance sheet is represented by working capital, which is directly involved in the production process (line 1200 of the balance sheet).
Formula for the average annual value of assets on the balance sheet
To calculate the average amount of assets of an enterprise for a year, it is necessary to add up the amount of assets at the beginning and end of the year. This amount is then divided by 2 or multiplied by 0.5.
The formula for the average annual value of assets on the balance sheet uses the data financial statements.
In general, the formula for the average annual value of assets on the balance sheet is as follows:
SA avg = (SAnp + SAkp) / 2
Here CA av is the average annual value of assets,
SAnp – asset value at the beginning of the period,
SACP is the value of assets at the end of the period (year).
The formula for the average annual value of assets on the balance sheet allows you to make calculations both for the assets of the enterprise as a whole, and separately for current and non-current assets.
The total assets of the enterprise are recorded on line 1600 of the balance sheet, which is compiled by accountants at the end of each year. When applying this formula, they use balance sheet indicators for several years, while the indicator on line 1600 is taken from the balance sheet for each year, summed up and subsequently divided by 2.
In the case of calculations for current assets, the formula for the average annual value of assets on the balance sheet will require information from line 1200 of the balance sheet. If calculations for non-current assets are required, then the accountant uses the indicators on line 1100 of the balance sheet. The indicators must be used in a similar way by finding the average value of assets and comparing balance sheet data for the corresponding years.
The value of the average annual value of assets on the balance sheet
The average annual value of assets, which is calculated by analysts, is subsequently used when calculating coefficients that can characterize the state and efficiency of any enterprise:
- Return on assets
- Asset turnover ratio, etc.
The indicator is also used to find the reasons that led to changes in the operation of the enterprise and make decisions in the field of resource management.
The average annual value of assets indicator can give a more accurate understanding of the size and value of assets, while it neutralizes circumstances that can distort the real amount of assets.
If the asset turnover indicators of different enterprises for different years are compared, then it is necessary to check the uniformity of the assessment of the average annual amount of assets.
Exercise
Based on financial statements 1, 2, 5, calculate:
1) performance indicators production resources(fixed assets, working capital, material resources);
2) indicators of turnover of working capital;
3) indicators of profitability of activities;
4) solvency indicators;
5) indicators financial stability;
6) indicators net assets and net working capital.
Arrange in tables and write a conclusion about financial condition in the analyzed period.
1) ANALYSIS OF THE EFFICIENCY OF USE OF PRODUCTION RESOURCES
Indicator name | Previous Year (2003) | Reporting year (2004) | ||
Profit (loss) before tax | ||||
Average annual cost of fixed assets | ||||
Capital productivity | ||||
Capital intensity | ||||
Average annual cost of working capital | ||||
Average annual cost of material resources | ||||
Material efficiency | ||||
Material consumption | ||||
Profit (loss) from sales | ||||
Profit per 1 rub. mat. costs |
Average annual cost of fixed assets= sum of indicators p. 190 for the reporting year /2
a) for 2003: (162840+68718)/2 = 115779
b) for 2004: (68718+66030)/2 = 67374
Capital productivity= Revenue (net) from the sale of goods / Average annual cost of fixed assets
a) for 2003: 197832/115779 = 1.71
b) for 2004: 181494/67374 = 2.69
Capital intensity= Average annual cost of fixed assets / Revenue (net) from the sale of goods
a) for 2003: 115779/197832 = 0.59
b) for 2004: 67374/181494 = 0.37
Average annual cost of working capital= sum of indicators p. 290 for the reporting year /2
a) for 2003: (28610+38160)/2 = 33385
b) for 2004: (38160+54648)/2 = 46404
Average annual cost of material resources= inventory + VAT on purchases. values/ 2
a) for 2003: ((20200+ 1526)+(20552+1880))/2 = 22079
b) for 2004: ((20552+1880)+(34480+2080))/2 = 29496
Material efficiency= Revenue (net) from the sale of goods / Average annual cost of material resources;
a) for 2003: 197832/ 22079 = 8.96
b) for 2004: 181494/ 29496 = 6.15
Material consumption= Average annual cost of material resources / Revenue (net) from the sale of goods.
a) for 2003: 22079/197832 = 0.11
b) for 2004: 29496/181494 = 0.16
Profit per 1 rub. material costs= Revenue (net) from the sale of goods / Profit (loss) from sales
a) for 2003: 197832/ 12860 = 15.38
b) for 2004: 181494/ 13944 = 13.02
The efficiency of using materials has decreased, as can be seen from the table:
Material intensity increased by 0.05, it shows how many material resources are needed to produce units. products.
Material productivity for the reporting period decreased by 2.81, this indicator characterizes the number of products produced per 1 ruble. consumed material resources.
Capital productivity shows how many products are produced using 1 ruble. fixed assets. During the analyzed period, there was an increase in indicators.
The value of the capital intensity indicator decreased. Capital intensity characterizes the amount of fixed assets necessary to produce products worth 1 ruble.
2) ANALYSIS OF WORKING CAPITAL TURNOVER INDICATORS
Average annual cost of total capital= balance amount at the beginning and end of the period
a) for 2003: (191450+106878)/2=149164
b) for 2004: (106878+120678)/2=113778
Average annual cost of working capital= amount line 290 at the beginning and end of the period
a) for 2003: (28610+38160)/2=33385
b) for 2004: (38160+54648)/2=46404
Capital turnover ratio=revenue /avg. cost of capital;
a) for 2003: 197832/149164=1.33
b) for 2004: 181494/113778=1.60
The working capital ratio is calculated in a similar way.
Turnover in days= (average cost of working capital / sales revenue) X360;
The total capital turnover ratio increased by 0.27;
The duration of turnover of total capital decreased by 45.76;
The duration of working capital turnover increased by 31.29
The indicators of the enterprise's capital turnover give grounds to conclude that its use is deteriorating, however, the indicators of working capital turnover are growing.
3) PROFITABILITY INDICATORS
Indicator name | Previous Year (2003) | Reporting year (2004) | Deviation | |
Revenue (net) from the sale of goods | ||||
Profit (loss) from sales | ||||
Return on sales in % | ||||
Average annual cost of capital | ||||
Return on equity in % | ||||
Average annual cost of working capital | ||||
Return on working capital in % | ||||
Average annual cost of fixed assets | ||||
Return on fixed assets in % |
Return on sales= Profit (loss) from sales / Revenue (net) from sales of goods
a) for 2003: 12860/197832=0.065
b) for 2004: 13944/181494=0.077
Return on Equity= Profit (loss) before tax / Average annual cost of capital
a) for 2003: 11426/149164=0.077
b) for 2004: 9170/113778=0.08
Return on working capital= Profit (loss) before tax / Average annual cost of working capital
a) for 2003: 11426/33385=0.342
b) for 2004: 9170/46404=0.198
Return on fixed assets= Profit (loss) before tax / Average annual cost of fixed assets
a) for 2003: 11426/115779=0.098
b) for 2004: 9170/67374=0.136
The return on sales indicator, which characterizes how much profit a company has from 1 ruble. sales grew by 1.2% in the reporting period. Return on equity increased compared to previous period by 0.3%. Return on equity, which characterizes the return on equity, decreased by 45.4%. from 159.3 in 2003 up to 114.0. Return on working capital decreased by 14.4% from 34.2 in 2003. up to 19.8% in 2004
The profitability of fixed assets characterizes the profit before tax per 1. rub. fixed assets, it grew by 3.7%.
4) SOLVENT ASSESSMENT
Coefficient absolute liquidity = cash(260) + short-term financial. investments (250) / short-term liabilities;
Coefficienturgent liquidity= (Cash + Short-term financial investments + Accounts receivable)/ Short-term liabilities;
Coefficientcurrent liquidity= (Current assets - Deferred expenses) / Current liabilities;
The absolute liquidity ratio shows what part of short-term liabilities can be repaid using available cash.
The quick liquidity ratio shows the degree of repayment of short-term liabilities in cash, short-term financial investments And accounts receivable an increase of 1.75 was noted in this indicator;
The current liquidity ratio shows the degree to which short-term debt is covered by current assets; an increase of 0.03 was noted in this indicator.
Due to the fact that liquidity indicators do not correspond to standard values (Current liquidity ratio is norm -2, Quick liquidity ratio is norm -07.-1), we will calculate the coefficient of recovery and loss of solvency:
Recovery and loss of solvency ratio = Current liquidity ratio (2004) + 6/12 (Current liquidity ratio (2004) - Current liquidity ratio (2003)) / 2
Coefficient of recovery and loss of solvency = (1.33 + 6/12 (1.33-1.36)) / 2 = 0.66
Since the coefficient of restoration and loss of solvency is less than 1, the company cannot restore its solvency within 6 months.
5) FINANCIAL STABILITY RATIO
Indicator name | Deviation | |||
Equity | ||||
long term duties | ||||
Short-term liabilities | ||||
Borrowed capital(pp. 590+610+620+630) | ||||
Balance currency | ||||
Coefficient financial autonomy | ||||
Financial dependency ratio | ||||
Coefficient current debt | ||||
Financial risk ratio | ||||
Debt coverage ratio own funds |
Financial autonomy ratio= Own capital/Balance sheet currency;
Financial dependency ratio= Borrowed capital / Balance sheet currency;
Current debt ratio= Current liabilities/ Balance sheet currency;
Debt coverage ratio with own funds=Equity capital/Debt capital;
Financial risk ratio= Debt capital/Equity capital.
The enterprise's financial dependence on external sources decreased - the share of equity capital increased by 146, but borrowed capital increased by 13,654, and the financial risk coefficient increased accordingly by 0.18. The financial autonomy coefficient decreased by 0.08, the current debt ratio increased by 0.06, and the debt coverage ratio with own funds decreased by 0.81.
6) ANALYSIS OF INDICATORS NET ASSETS
Net assets= Current assets-(Loans and credits+ Accounts payable+ Debt to the founders for payment of income + Other short-term liabilities);
Own working capital= Negotiable assets - Non-current assets.
In the analyzed period, the net assets of the enterprise increased by 5360, which indicates an improvement in financial stability, however, the enterprise cannot finance its activities itself through working capital because The indicator Own working capital has a negative value.