The most important indicators of use working capital at the enterprise are the turnover ratio of working capital and the duration of one revolution.
Working capital turnover ratio(Kob) shows how many revolutions the working capital made during the analyzed period (quarter, half-year, year). It is determined by the formula
where Vp is the volume of product sales for the reporting period;
O avg, is the average balance of working capital for the reporting period.
Duration of one revolution in days(D) shows how long it takes for the company to return its working capital in the form of revenue from sales of products. It is determined by the formula
where T is the number of days in the reporting period.
An important indicator of the effective use of working capital is also utilization rate of funds in circulation. It characterizes the amount of working capital advanced for 1 ruble. revenue from product sales. In other words, it represents the working capital intensity, i.e. costs of working capital (in kopecks) to receive 1 rub. sold products (works, services). The utilization rate of funds in circulation is determined by the following formula:
where Kz is the load factor of funds in circulation, kopecks;
100 - conversion of rubles to kopecks.
The load factor of funds in circulation (Kz) is the inverse value of the fund turnover ratio (Kob). The lower the utilization rate of funds, the more efficiently the working capital is used at the enterprise, and its financial position improves.
Example
During the reporting year, the volume of product sales amounted to 20 billion rubles, and the average annual balance of working capital was 5 billion rubles. For the planning period, it is planned to increase the sales volume by 20%, and the turnover ratio by one turnover.
Determine the indicators for the use of working capital in the reporting and planning period and their release.
Solution
1. We determine the indicators of the use of working capital for the reporting period:
2. We determine the indicators for the use of working capital in the planning period:
3. Determine the release of working capital:
where Qo is the need for working capital in the planning period, if there were no acceleration of their turnover;
Qpl - the need for working capital in the planning period, taking into account the acceleration of their turnover.
The turnover of working capital at an enterprise depends on the following factors: the duration of the production cycle; quality of products and their competitiveness; efficiency of working capital management at the enterprise in order to minimize them; solving the problem of reducing material consumption of products; method of supplying and marketing products; structures of working capital, etc. These are the ways to accelerate the turnover of working capital at an enterprise.
See also:
The company invests its working capital in current business and production operations.
Turnover ratios(indicators) are of great importance for assessment, analysis and forecasting financial condition companies or enterprise, since the rate at which current assets are converted into cash has a significant impact on profitability, creditworthiness and solvency.
The turnover ratio characterizes:
- number of revolutions, which working capital makes during the analyzed period of time (for example, a quarter or a year);
- revenue, per one monetary unit, for example, one ruble of working capital.
Formula for calculating the working capital turnover ratio
The turnover ratio can be determined by dividing the revenue received over a period of time by the average amount of working capital for the same period.
The formula that determines the turnover ratio is the ratio of sales revenue for a quarter or year to the average amount of working capital:
Cob = RP/CO, where
- To ob.- turnover ratio;
- RP- sales revenue for the analyzed period (for example, quarter or year);
- CO- the average amount of working capital for the same period (calculated as the arithmetic mean: the amount of working capital at the beginning and end of the same period, divided by two).
What are the sources of information for the calculation?
The source of information for calculating the turnover ratio is:
- annual accounting balance;
- income statement(formerly profit and loss).
The balance of the line with code 1200 shows the total amount of current assets.
In the income statement, line code 2110 reflects sales proceeds, excluding value added tax and excise taxes.
Cob = line 2110 Form 2 / (line 1200 beginning year Form 1 + line 1200 ending year Form 1) / 2
Example.
The billing period is one year.
The proceeds from the sale are 900 million rubles.
The average annual amount of working capital is 300 million rubles.
Let's calculate the turnover ratio:
This means that per ruble of working capital, goods worth 3 rubles were sold. The annual amount of working capital (300 million rubles) made 3 turnovers.
What factors does the coefficient depend on?
The value of the turnover ratio is influenced by various economic, political and production factors. 
External factors:
- industry in which the company operates or organization;
- enterprise size(small, medium, large);
- scope and type of activity enterprises;
- economic situation in the country;
- inflationary processes;
- expensive loans;
- promotion taxes.
Internal factors directly depend on the operation of the enterprise itself, for example:
- management system efficiency assets;
- accounting policies;
- price policy;
- volume of sales and the rate of its change;
- assessment methods stocks;
- system improvement calculations;
- qualification personnel.
The turnover ratio mainly depends on the industry in which the organization or enterprise operates. Trade enterprises have the highest coefficients. Business in the field of science or culture does not have such a high indicator.
How to determine the profitability of working capital of fixed assets?
The profitability of the enterprise's turnover shows how effectively the organization's working capital is used - the amount of profit per 1 ruble of current assets.
Formula for calculating the profitability of working capital
K p = PE/SO, Where 
- Emergency — net profit for the analyzed period (for example, quarter or year);
- CO— average amount of working capital.
Balance sheet profitability formula:
K p =line 2400 / line 1200.
If the profitability ratio increases, then the company makes enough profit to produce efficient use current assets.
Analysis of the turnover ratio of current assets
Turnover ratio analysis- main component financial analysis.
Carried out using:
- comparison of actual indicators(proceeds from sales, amounts of current assets) with planned ones;
- comparison of actual indicators with relevant historical data.
As a result of the comparison, either the acceleration of turnover (the coefficient will increase) or the slowdown (the coefficient will decrease) is determined.
Increase in coefficient:
- leads to release material resources;
- volume increase products;
- helps increase business activity and profits;
- allows you to highlight financial resources for development and modernization, without attracting additional loans for this;
- indicates improved methods of using and organizing supplies at the enterprise.
An increase in the turnover ratio indicates that current assets are used efficiently and effectively. In general, the financial condition and solvency of the enterprise improves.
Increasing the turnover ratio is achieved by:
- increase in sales growth compared to growth working capital;
- technology modernization production;
- improving the marketing system, sales and supply;
- increasing competitiveness;
- quality improvement products;
- production reduction cycle;
- payment compliance disciplines.
A decrease in the turnover ratio leads to a deterioration in the financial condition of the organization or enterprise, there is a need to raise additional funds.
Reasons for reducing the working capital turnover ratio
The economic crisis and its components have a negative impact on the turnover ratio, for example:
- decline in volumes production;
- decline in consumer demand;
- violation of contractual and payment agreements obligations.
Also, a decrease in the turnover ratio can be caused by the following reasons:
- accumulation and excess of working capital(most often stocks);
- low qualifications personnel;
- growth of accounts payable enterprises;
- ineffective marketing policy;
- errors in the logistics system.
Timely detection and elimination of the causes of a decrease in the turnover ratio will help to avoid a financial crisis and bankruptcy of the enterprise.
Is there a normal turnover ratio?
There is no norm or so-called standard turnover ratio.
Therefore, the main task for economists– observe in a timely manner what will happen to the dynamics of changes in the indicator over certain periods of time. For comparison, you can use data from other organizations and enterprises that operate in a similar industry.
If the turnover ratio increases over time This means that the financial well-being and solvency of the enterprise is growing.
If the turnover ratio decreases every year, it is recommended to immediately review economic policy business.
Turnover analysis is one of the leading areas of analytical study financial activities organizations. Based on the results of the analysis, assessments of business activity and the effectiveness of asset and/or capital funds management are made.
Today, the analysis of working capital turnover raises many disputes between practical economists and theoretical economists. This is the most vulnerable point in the entire methodology of financial analysis of an organization’s activities.
What characterizes turnover analysis
The main purpose for which it is carried out is to assess whether the enterprise is able to make a profit by completing the “money-product-money” turnover. After the necessary calculations, the conditions for material supply, settlements with suppliers and customers, sales of manufactured products, etc. become clear.
So what is turnover?
This is an economic quantity that characterizes a certain time period during which the complete circulation of funds and goods takes place, or the number of these circulations during a designated time period.
Thus, the turnover ratio, the formula of which is given below, is equal to three (the analyzed period is a year). This means that in a year of operation, an enterprise earns more money than the value of its assets (that is, they turn over three times in a year).
The calculations are simple:
K about = sales revenue / average value assets.
It is often necessary to find out the number of days it takes to complete one revolution. To do this, the number of days (365) is divided by the turnover ratio for the analyzed year.
Commonly used turnover ratios
They are necessary to analyze the business activity of an organization. Fund turnover indicators show the intensity of use of liabilities or certain assets (the so-called turnover rate).
So, when analyzing turnover, the following turnover ratios are used:
Own capital of the enterprise,
Working capital assets,
Full assets
Inventories,
Debts to creditors,
Accounts receivable.
The higher the calculated total asset turnover ratio, the more intensively they work and the higher the indicator of business activity of the enterprise. Doesn’t always have a positive effect on turnover industry specifics. Thus, in trade organizations through which large volumes of money pass, turnover will be high, while in capital-intensive enterprises it will be significantly lower.
When comparing the turnover ratios of two similar enterprises belonging to the same industry, you can see a difference, sometimes significant, in the efficiency of asset management.
If the analysis shows a high receivables turnover ratio, then there is reason to talk about significant efficiency in payment collection.
This coefficient characterizes the speed of movement of working capital, starting from the moment of receiving payment for material assets and ending with the return of funds for sold goods (services) to bank accounts. The amount of working capital is the difference between the total amount of working capital and the balance of funds in the bank accounts of the enterprise.
If the turnover rate increases with the same volume of goods (services) sold, the organization uses smaller amounts of working capital. From this we can conclude that material and financial resources will be used more efficiently. Thus, the working capital turnover ratio indicates the entire set of processes economic activity, such as: reducing capital intensity, increasing productivity growth rates, etc.
Factors influencing the acceleration of working capital turnover
These include:
Reducing the total time spent on the technological cycle,
Improvement of technology and production process,
Improving the supply and marketing of goods,
Transparent payment and settlement relations.
Money cycle
Or, as it is also called, working capital is the time period of cash turnover. Its beginning is the moment of acquisition work force, materials, raw materials, etc. Its end is receiving money for goods sold or services provided. The value of this period shows how effective working capital management is.
Short cash cycle ( positive characteristic activities of the organization) makes it possible to quickly return funds invested in current assets. Many enterprises that have a strong position in the market, after analyzing their turnover, receive a negative coefficient working capital. This is explained, for example, by the fact that similar organizations have the opportunity to impose their conditions on both suppliers (receiving various payment deferments) and buyers (significantly reducing the payment period for goods (services) supplied).
Inventory turnover
This is the process of replacement and/or complete (partial) renewal of inventory. It occurs through the transfer of material assets (that is, capital invested in them) from the inventory group to the production and/or sales process. Analysis of inventory turnover makes it clear how many times the remaining inventory was used during the billing period.
Inexperienced managers create excess reserves for reinsurance, without thinking that this excess leads to the “freezing” of funds, excess expenses and a decrease in profits.
Economists advise avoiding such deposits of inventories that have low turnover. And instead, by accelerating the turnover of goods (services), freeing up resources.
Inventory turnover ratio is one of the important criteria for assessing the activity of an enterprise
If the calculation shows a ratio that is too high (compared to averages or the previous period), then this may indicate a significant lack of inventory. If on the contrary, then the stocks of goods are not in demand or are very large.
It is possible to obtain a characteristic of the mobility of funds invested in the creation of inventories only by calculating the inventory turnover ratio. And the higher the business activity of the organization, the faster the funds are returned in the form of proceeds from the sale of goods (services) to the accounts of the enterprise.
There are no generally accepted standards for the cash turnover ratio. They are analyzed within one industry, and the ideal option is in the dynamics of a single enterprise. Even the slightest decrease in this ratio indicates excess inventory accumulation, ineffective warehouse management, or the accumulation of unusable or obsolete materials. On the other hand, a high indicator does not always characterize the business activity of an enterprise well. Sometimes this indicates inventory depletion, which can cause process disruptions.
Affects inventory turnover and the activities of the organization’s marketing department, since high profitability sales entails low coefficient turnover.
Accounts receivable turnover
This ratio characterizes the speed of repayment of accounts receivable, that is, it shows how quickly the organization receives payment for goods (services) sold.
It is calculated for a single period, most often a year. And it shows how many times the organization received payments for products in the amount of the average debt balance. It also characterizes the policy of selling on credit and the effectiveness of working with customers, that is, how effectively receivables are collected.
The accounts receivable turnover ratio does not have standards and norms, since it depends on the industry and technological features of production. But in any case, the higher it is, the faster the receivables are covered. At the same time, the efficiency of the enterprise is not always accompanied by high turnover. For example, sales of products on credit give a high balance of receivables, while the turnover rate is low. 
Accounts payable turnover
This coefficient shows the relationship between the amount of money that needs to be paid to creditors (suppliers) by the agreed date and the amount spent on purchases or on the purchase of goods (services). Calculation of accounts payable turnover makes it clear how many times its average value was repaid during the analyzed period.
Financial stability and solvency are reduced with a high share of accounts payable. At the same time, it gives you the opportunity to use “free” money for the entire duration of its existence.
The calculation is simple
The benefit is calculated as follows: the difference between the amount of interest on a loan equal to the amount of debt (that is, a hypothetically taken loan) for the time it is on the organization’s balance sheet, and the volume of accounts payable itself.
A positive factor in the activity of an enterprise is considered to be the excess of the accounts receivable ratio over the accounts payable turnover ratio. Lenders prefer more high coefficient turnover, however, it is beneficial for the company to keep this ratio at a lower level. After all, unpaid amounts of accounts payable are a free source for financing the current activities of the organization.
Resource efficiency, or asset turnover
Makes it possible to calculate the number of capital turnover for a particular period. This turnover ratio, the formula exists in two versions, characterizes the use of all assets of the organization, regardless of the sources of their receipt. An important fact is that only by determining the resource efficiency ratio can you see how many rubles of profit accrue for each ruble invested in assets.
The asset turnover ratio is equal to the quotient of revenue divided by the value of assets on average for the year. If you need to calculate turnover in days, then the number of days in a year must be divided by the asset turnover ratio.
The leading indicators for this category of turnover are the period and speed of turnover. The latter is the number of capital turnover of the organization over a certain period of time. This period is understood as the average period during which the return of funds invested in the production of goods or services occurs.
Asset turnover analysis is not based on any norms. But the fact that in capital-intensive industries the turnover ratio is significantly lower than, for example, in the service sector is definitely understandable.
Low turnover may indicate insufficient efficiency in working with assets. Do not forget that sales profitability standards also affect this category of turnover. Thus, high profitability entails a decrease in asset turnover. And vice versa.
Equity turnover
It is calculated to determine the rate of equity capital of an organization for a particular period.
The capital turnover of an organization's own funds is intended to characterize various aspects of the financial activity of an enterprise. For example, from an economic point of view, this coefficient characterizes the activity of the monetary turnover of invested capital, from a financial point of view - the speed of one turnover of invested funds, and from a commercial point of view - excess or insufficient sales.
If this indicator shows a significant excess of the level of sales of goods (services) over invested funds, then, as a consequence, an increase in credit resources will begin, which, in turn, makes it possible to reach a limit beyond which the activity of creditors increases. In this case, to equity the liability ratio increases and credit risk increases. And this entails the inability to pay these obligations.
Low capital turnover of own funds indicates their insufficient investment in the production process.
WORKING CAPITAL
The production process requires not only buildings and equipment, product licenses and other types of fixed assets and intangible assets. The production process also requires raw materials, spare parts and semi-finished products, as well as other resources that are included in working capital. Working capital, along with non-current assets, is the most important production factor
Working capital- this is money invested in raw materials, fuel, work in progress, finished but not yet sold products, as well as money necessary to service the circulation process
A characteristic feature of working capital is the high speed of their turnover. The functional role of working capital in the production process is fundamentally different from fixed capital. Working capital ensures the continuity of the production process.
The material content of working capital is objects of labor, as well as means of labor with a service life of no more than 12 months.
Material elements of working capital (labor items) are consumed in each production cycle. They completely lose their natural form, therefore they are fully included in the cost of manufactured products (work performed, services rendered).
Composition, structure and classification of working capital
Under composition of working capital it is necessary to understand the elements included in their composition (Fig. 1):
Industrial inventories (raw materials and basic materials, purchased semi-finished products, auxiliary materials, fuel, spare parts...);
Unfinished production;
Future expenses;
Finished products in warehouses;
Products shipped;
Accounts receivable;
Cash in the company's cash register and bank accounts.
Raw materials is a product of the extractive industries.
Materials represent products that have already undergone certain processing. Materials are divided into basic and auxiliary.
Basic– these are materials that are directly included in the composition of the manufactured product (metal, fabric).
Auxiliary – these are the materials necessary to ensure the normal production process. They themselves are not included in the finished product (lubricants, reagents).
Semi-finished products– products completed by processing at one processing stage and transferred for processing to another processing stage. Semi-finished products can be own and purchased. If semi-finished products are not produced at
own enterprise, but are purchased from another enterprise, they are classified as purchased and are included in production inventories.
Figure 1 – Elemental composition of working capital
Unfinished production - These are products (works) that have not passed all the stages (phases, processing stages) provided for by the technological process, as well as incomplete products that have not passed testing and technical acceptance.
Future expenses- these are expenses of a given period that are subject to repayment at the expense of the cost of subsequent periods.
Finished products represents fully finished finished products or semi-finished products received at the enterprise warehouse.
Accounts receivable– money that individuals or legal entities owe for the supply of goods, services or raw materials.
Cash– these are funds located in the cash register of the enterprise, in bank accounts and in settlements.
Based on the elemental composition of working capital, they can be calculated structure, which represents the share of the cost of individual elements of working capital in their total cost.
According to sources of education, working capital is divided into own and borrowed (borrowed). Own working capital is formed at the expense of the enterprise's own capital (authorized capital, reserve capital, accumulated profit, etc.). Borrowed working capital includes bank loans, as well as accounts payable. They are provided to the company for temporary use. One part is paid (credits and borrowings), the other is free (accounts payable).
In different countries, different ratios (standards) are used between equity and debt capital. In Russia, the ratio is 50/50, in the USA – 60/40, and in Japan – 30/70.
According to the degree of controllability, working capital is divided into standardized and non-standardized. Standardized assets include those working capital that ensures continuity of production and contributes to the efficient use of resources. These are inventories, deferred expenses, work in progress, finished goods in warehouse. Cash, shipped products, and accounts receivable are classified as non-standardized working capital. The absence of standards does not mean that the amounts of these funds can be changed arbitrarily. The current procedure for settlements between enterprises provides for a system of sanctions against the growth of non-payments.
Standardized working capital is planned by the enterprise, while non-standardized working capital is not an object of planning.
Circulation of working capital. Turnover indicators
Working capital is in constant motion. The circulation of capital covers three stages: procurement, production and marketing.
Any business starts with a certain amount of cash, which is invested in a certain amount of resources for production.
At the production stage, resources are embodied in goods, works or services. The result of this stage is the transition of working capital from the production form to the commodity form.
After the sale of the produced product, working capital from the commodity form again passes into money. The sizes of the initial amount of money and proceeds from the sale of products (works, services) do not coincide in size. The resulting financial result of the business (profit or loss) explains the reasons for the discrepancy (Fig. 2).
The time required for a complete turnover of working capital is called turnover time (period) working capital.
The time (duration) of turnover of working capital is one of the indicators turnover. Another indicator of turnover is the turnover ratio.
Turnover ratio- this is the number of revolutions that working capital makes over a certain period; it is calculated using the formula:
Where R– volume of products sold for the period under review;
OS– the average amount of working capital for the same period.
The time (duration) of turnover is usually called turnover in days. This indicator is determined by the formula:
Where D– the number of days in a given period (360, 90, 30);
TO about– turnover ratio:
After substituting the corresponding values into the formula, you can obtain a detailed expression for the turnover indicator:
At each stage of the circulation of working capital, it is possible to determine the private turnover of each element of working capital:
Partial turnover indicators can be calculated based on specific turnover. A special turnover for material inventories is their consumption for production, for work in progress - the receipt of goods at the warehouse, for finished products - shipment, for shipped products - their sale.
Average for the period, the amounts of working capital used in calculating turnover indicators are determined using the average chronological formula. The average annual amount (average annual working capital balances) is found as the arithmetic average of four quarterly amounts:
The quarterly average amount is calculated as the average of three monthly averages:
The expression used to calculate the average monthly amount is:
The amount of working capital at the disposal of the enterprise must be large enough so that the circulation process is not interrupted. At the same time, the presence of excess working capital negatively affects the results of its activities.
Figure 2 – stages of circulation of working capital
Methods for determining the need for working capital
Effective use of working capital largely depends on the correct determination of the need for working capital. An underestimation of the amount of working capital entails instability of the financial situation, interruptions in the production process and a decrease in production volumes and profits. Overestimation of the size of working capital reduces the ability of the enterprise to make capital expenditures to expand production (Fig. 3).
The need for working capital depends on many factors: production and sales volumes; the nature of the enterprise's activities; duration of the production cycle; types and structure of consumed raw materials; growth rates of production volumes, etc.
Figure 3 – Optimal amount of working capital
An accurate calculation of the enterprise's need for working capital should be based on the time spent by working capital in the sphere of production and the sphere of circulation.
The residence time of working capital in the production sector covers the period during which working capital remains in the state of inventory and in the form of work in progress.
The period of stay of working capital in the sphere of circulation covers the period of their presence in the form of balances of unsold products, in the form of shipped but not yet paid products, accounts receivable, in the form of cash in the cash register of the enterprise, in bank accounts.
The higher the turnover rate (the total time spent in the sphere of production and circulation), the lower the need for working capital.
The company is interested in reducing the size of its working capital. But this reduction must have reasonable limits, since working capital must ensure normal operation.
When determining the optimal need for working capital, the amount of money that will be advanced to create inventories, backlogs of work in progress and the accumulation of finished products in the warehouse is calculated. For this, three methods are used: analytical, coefficient and direct counting method.
Essence analytical, or the experimental-statistical method is that when analyzing existing inventory items, their actual inventories are adjusted and excess and unnecessary values are eliminated.
At coefficient method, amendments are made to the standard of the previous period for the planned change in production volumes and for the acceleration of turnover.
Analytical and coefficient methods can be used in those enterprises that have been operating for more than a year, have formed a production program and organized the production process, have statistical data for previous years and do not have a sufficient number of qualified specialists for more detailed work in the field of working capital planning.
Method direct account provides for the calculation of inventories for each element of working capital. This method is used when organizing a new enterprise and periodically clarifying the working capital needs of an existing enterprise.
General standards of own working capital are determined in the amount of their minimum requirement for the formation of reserves of raw materials, supplies, fuel, work in progress, deferred expenses, finished products.
The general working capital standard consists of the sum of private standards:
Where N P h – standard of production reserves;
N np– work-in-progress standard;
N gp– finished product standard;
N br – standard for future periods.
The production inventory standard depends on the average daily consumption of raw materials, fuel materials and the stock standard in days:
Where R With – average daily consumption of a given type of raw material or materials ( in rubles);
T days – stock norm in days
The average stock norm in days is calculated in general as a weighted average of the working capital stock norms for individual types.
The stock norm in days for a particular type is made up of the following components:
Where T tr – transport stock;
T tech – current warehouse stock;
T page – insurance (warranty stock);
T season – seasonal stock.
Transport stock is established by the length of time it takes the cargo to travel from the supplier to the consumer, taking into account the time of document flow.
If there are several suppliers, then the transport stock is determined as a weighted average value, taking into account the duration of the run and the size of the supply:
Delivery volume, t Cargo travel time, days.
1st supplier 20 15
2nd supplier 30 14
3rd supplier 10 12
T tr = (20 ×15 + 30 × 14 + 10 ×12) \ (20 + 30 + 10) = 14 days,
Figure 4 – Current warehouse stock
Current warehouse stock material assets are called a stock that meets production needs for the period between the two next arrivals of their suppliers (Fig. 4).
The composition of working capital includes the average current stock, taken in the amount of 50% of the duration of the interval between two adjacent deliveries:
Where AND– duration in days of the interval between deliveries.
The average interval between deliveries can be calculated using the formula:
Where P – number of deliveries for the period
Warranty (insurance) stock material assets is a reserve intended to meet the needs of production in case of a delay in the receipt of material assets.
The amount of safety stock is usually set within 50% of the current stock. This limit increases if the enterprise is located far from suppliers, the materials consumed are unique, and the manufactured products require many components or components from different suppliers.
Seasonal stock is calculated at enterprises with seasonal supplies of raw materials.
Amount of working capital for work in progress is determined taking into account the duration of the production cycle and the value of the cost increase coefficient:
Where IN– volume of average daily production at production cost;
T ts – duration of the production cycle;
TO ne – coefficient of increase in costs in work in progress
Production cycle refers to a number of production processes performed in the manufacture of products.
Production cycle time consists of the time spent directly on operations for processing raw materials, materials, workpieces, and the time required for breaks between operations from the start of the first operation to the delivery of finished products to the warehouse.
Cost increase factor characterizes the degree of product readiness and is determined by the ratio of the cost of work in progress to the cost of finished products.
The increase in costs can be uniform and uneven (slow and accelerated).
At uniform increase in costs the cost increase coefficient is found using the formula:
Where WITH n– the cost of raw materials and materials entering the production process;
WITH To– cost of finished products.
At uneven increase in costs Cost growth factors are first determined at several points in the production process:
Where TO i– coefficient of increase in costs at the i-th point;
WITH i– the cost of work in progress at the i-th point;
WITH To– cost of the finished product.
The overall cost increase factor for the process is calculated as the average value:
Where TO nz– general cost increase coefficient for the process;
i– number of points for calculating partial coefficients.
The amount of working capital invested in finished product inventories in the warehouse depends on the average daily output of products and the duration of storage of products in the warehouse:
Where IN– average daily output at production cost;
T xp– the average duration of storage of finished products in the warehouse.
The duration of storage of products in the warehouse, in turn, is calculated as the sum of the time for the formation of a batch of products for shipment and the preparation of documents for this batch:
Where T FP– time required to form a batch for shipment of finished products to the consumer, days;
T od– time required to prepare documents for sending cargo to the consumer, days.
Calculated in one way or another, the amount of working capital required for normal operation increases the efficiency of using this resource.
The director of a company, who only has indicators of profit and overall profitability before his eyes, cannot always understand how to adjust them in the right direction. In order to have all the control levers in your hands, it is absolutely necessary to also calculate the turnover of working capital.
The picture of the use of working capital consists of four main indicators:
- Duration of turnover (determined in days);
- How many times do working capital turn over in the reporting period;
- How much working capital is there per unit of products sold;
Let's consider the calculation of these data using the example of an ordinary enterprise, as well as the calculation of a number of important coefficients for understanding the meaning of turnover indicators in big picture company success.
Turnover ratio
The main formula determining the rate of turnover of working capital is as follows:
Cob is the turnover ratio. It shows how many turnovers of working capital were made during a specific period of time. Other designations in this formula: Vp - volume of product sales for the reporting period;
Osr is the average balance of working capital for the reporting period.
Most often, the indicator is calculated for the year, but absolutely any period needed for analysis can be selected. This coefficient is the rate of turnover of working capital. For example, annual turnover mini store mobile phones amounted to 4,800,000 rubles. The average balance in circulation was RUB 357,600. We get the turnover ratio:
4800000 / 357600 = 13.4 revolutions.
Duration of turnover
It also matters how many days one revolution lasts. This is one of the most important indicators, which shows how many days later the company will see the funds invested in turnover in the form of cash proceeds and will be able to use them. Based on this, you can plan both making payments and expanding your turnover. The duration is calculated as follows:
T is the number of days in the analyzed period.
Let's calculate this indicator for the above digital example. Since the enterprise is a trading enterprise, it has minimal amount weekends - 5 days a year, for calculation we use the figure of 360 working days.
Let's calculate how many days later the company could see the money invested in turnover in the form of revenue:
357,600 x 360 / 4,800,000 = 27 days.
As you can see, the turnover of funds is short; the management of the enterprise can plan payments and use of funds to expand trade almost monthly.
To calculate working capital turnover important It also has a profitability indicator. To calculate it, you need to calculate the ratio of profit to the average annual balance of working capital.
The enterprise's profit for the analyzed year amounted to 1,640,000 rubles, the average annual balance was 34,080,000 rubles. Accordingly, the profitability of working capital in this example is only 5%.
Load factor of funds in circulation.
And one more indicator necessary to assess the speed of turnover of working capital is the load factor of funds in circulation. The coefficient shows how much working capital is advanced per 1 ruble. revenue. This is the working capital intensity, which shows how much working capital must be spent for the company to receive 1 ruble of revenue. It is calculated like this:
Where Kz is the load factor of funds in circulation, kopecks;
100 - conversion of rubles to kopecks.
This is the opposite of the turnover ratio. The smaller it is, the better the use of working capital. In our case, this coefficient is equal to:
(357,600 / 4,800,000) x 100 = 7.45 kopecks.
This indicator is an important confirmation that working capital is used very rationally. The calculation of all these indicators is mandatory for an enterprise that seeks to influence operational efficiency using all possible economic levers.
In Forecast NOW! can be calculated
- Turnover in monetary and natural units both for a specific product and for a group of products, and by section - for example, by suppliers
- Dynamics of changes in turnover in any necessary sections
An example of calculating the turnover rate by product groups:
Assessing the dynamics of changes in turnover by product/group of products is also very important. At the same time, it is important to correlate the turnover schedule with the service level schedule (how much we satisfied consumer demand in the previous period).
For example, if turnover and the level of service are declining, then this is an unhealthy situation - you need to study this group of products more carefully.
If turnover increases, but the level of service decreases, then the increase in turnover is most likely due to smaller purchases and an increase in shortages. The opposite situation is also possible - turnover decreases, but in this calculation the level of service - customer demand is ensured by large purchases of goods.
In these two situations, it is necessary to evaluate the dynamics of profit and profitability - if these indicators grow, then the changes taking place are beneficial for the company; if they fall, it is necessary to take action.
In Forecast NOW! It’s easy to assess the dynamics of turnover, service level, profit and profitability - just carry out the necessary analysis.
Example:
Since August, there has been an increase in turnover with a decrease in the level of service - it is necessary to evaluate the dynamics of profitability and profit:
Profitability and profit have been falling since August, we can conclude that the dynamics of changes are negative
