The success of any enterprise directly depends on how rationally working capital is spent. It is very important to pay great attention the economic side of the revolving fund.
Conducting such research is not at all difficult and it will help determine whether there are problems at the enterprise and solve them, thereby preventing losses.
plays a very important role turnover ratio. It can be used to characterize how efficient the turnover of assets is.
The necessary data for calculating this ratio is taken from the accounting balance sheet.
The concept of working capital turnover ratio is the ratio of the amount that was received from the sale of products.
Working capital This is a certain amount of money that is invested in order to create production turnover funds. All this allows the company or company to work without interruptions.
Where to get indicators for calculation
Of course, it must be remembered that all this data must be used for the period for which the calculation is being made. Usually, all indicators are calculated for the year, so all the necessary information is taken from annual report in accounting.
The volume of all products already sold is indicated in the RP formula. This volume is located in line 10 of the loss and profit report. It is in this answer that you can clearly see all the net revenue from total sales for a certain period.
It is important to subtract and average cost all means of circulation. To do this, it is necessary to divide all amounts of working value from the beginning to the end of the required period.
The necessary data to make the calculation is taken from balance sheet, exactly from line 290. It is in it that the totals of all current assets are indicated.
What do the coefficients depend on?
Each industry has its own indicator. The indicator is highest in the trade industries. Other from industries, such as cultural or scientific organizations don't have high level coefficient Therefore, it is impossible to compare all enterprises, because they differ in their type of activity.
The coefficient depends on the following factors:
- Type of raw materials used in the industry;
- Volume and pace of production;
- Cycle duration;
- Qualifications of all employees of the enterprise;
- Type of activity of the enterprise;
Ratio calculations
The coefficient allows you to find out what the volume of revenue is from the sale of all goods or products and how much of this is accounted for per ruble of the working capital. This calculation uses the formula
Cob = RP/SO
Here the turnover ratio is defined as Cob.
RP is the volume of all products that were sold during the period for which the report is being carried out.
CO – denotes the average cost of turnover for the required period.
Analysis of current assets ratio
When the asset ratio is greater than 1, this indicates that the company is generating income. If the coefficient exceeds 1.36, such an enterprise is extremely profitable and brings very good profits.
It is also important to monitor changes in the coefficient over time. Everything looks more clearly in the tables, from which you can monitor all changes and draw appropriate conclusions.
Possible reasons for a decrease in the turnover ratio
If the dynamics of the coefficient falls, this is an alarming sign, and the company’s management should seriously think about how to increase it and what needs to be done for this.
Often the reason for a low indicator is excessive accumulation of material assets. In this case, you need to reduce the volume of goods, and invest all the saved money in production.
An important point is the introduction of new equipment and technologies, the desire to improve all production and operation of the enterprise.
The reasons for the low ratio could be anything. For example, It is very important to monitor the qualifications of employees and their level of productivity, monitoring the condition of the equipment so that breakdowns and production stagnation do not occur.
Calculation of the working capital ratio
It is impossible to imagine the effective and fruitful operation of an enterprise without the correct use of working capital.
Working capital always varies depending on the time of year, the standard of living and activity. If resources are used wisely, then the activities of the enterprise will be successful and fruitful.
How competently and correctly capital is used can be determined using ratios. Some of them help to analyze the liquidity and speed of the organization. The turnover ratio is very important. He designates it as Kob.
Indicators required for calculation
The turnover ratio is determined using the data that is in the financial report of the enterprise, namely in the first two lines of the accounting report.
The volume must be calculated as revenue for a certain period, which is taken from the financial results statement.
You need numbers that are written in the report line where the amount that was received from all sales or sales of services and goods is indicated.
The average residual is subtracted from the amount located in the second column of the accounting balance using the formula:
Ф ob.sr = Ф1+Ф0/2
F0 and F1 are two values of the enterprise’s turnover for the present and past periods.
Formula and calculation
The turnover ratio indicates the number of turnovers of working capital over a certain period of time. It can be calculated using the following formula:
Cob = Qp/Fob.avg.
That is, it turns out in such a way that all the money that the organization invests in the development of its business is returned back after a certain time and in the form of a finished product, which is then sold and brings monetary profit.
In addition to the coefficient indicating turnover in economic analysis, there are other designations:
- Duration of one revolution Tob;
- Profitability Rob.sr;
Turnover ratio analysis
Before analyzing the turnover ratio, it is necessary to understand what the working capital of an enterprise is. This is the value of assets whose useful life is less than a year.
These include:
- Production in progress;
- Already finished product and goods;
- Stock;
- Material resources;
- Accounts receivable;
Inventories can be reduced if all resources are used more economically and if production losses increase.
Reasons for the decline in turnover ratio
A decrease in the coefficient can occur for several reasons, based on internal and external factors.
Let’s say that the economy in the country has worsened and people began to buy less of a certain product, or when new models of equipment appear, the older ones will no longer be sold. This is an external reason.
Internal reasons:
- Mismanagement of funds;
- Erroneous actions in logistics and marketing;
- Debts of the organization;
- Application of old technologies in production;
The conclusion suggests that all these reasons appear due to errors within the company and insufficient qualifications of workers.
If the company has moved to a new, more modernized level and new methods, the coefficient may also decrease.
Calculations using example
For example, there is an organization called Omega. Having done an analysis for 2012, the result showed that the income that year was 100,000 rubles. and the amount of all working capital is 35,000 rubles. and in 2013 45,000 rubles.
Let's look at the formula:
Kob = 100,000r/(35+45/2)=2.5
Using the result of this formula, we calculate annual cycle enterprise turnover:
Tob = 360/2.5=144 days
It turns out that the production cycle of the Omega organization is 144 days.
Turnover of current assets
Definition
Using the current assets indicator, you can find out how many times over a certain period the organization used the average balance of all available funds.
In accordance with the balance sheet, current assets are:
- Stocks;
- Material resources;
- Short-term debt to debtors of purchased goods, including VAT.
Formula (calculation)
Current assets are calculated using a special formula:
Assets turnover = Revenue/turnover assets
For the formula, current assets must be taken as the average annual balance.
Normal value
Turnover indicators do not have any general norms. They are analyzed over time or in comparison with similar industry enterprises. A very low coefficient indicates that a very large accumulation of inventories in the enterprise.
Asset turnover ratio using the example of OJSC Rostelecom
The asset turnover ratio is part of the group of business activity indicators and shows How intensively the organization's resources were used.
The economic meaning of the asset turnover ratio
The asset turnover ratio helps determine how effective the organization is not in terms of profit, but from the use of assets in production.
What is a component of current assets?
Working capital is:
- Any stocks;
- Material resources, namely cash;
- Investments for short periods;
- Short-term accounts receivable;
On what factors does the value of the asset turnover ratio depend?
The asset turnover ratio depends on several factors:
- Duration of production;
- Qualification level of the organization's personnel;
- Organization's activities;
- Production rates;
The largest coefficient is in enterprises where they engage in trade. Its level is lowest in scientific enterprises. Therefore, it is necessary to compare organizations within their industry.
Synonyms for asset turnover ratio
Such a value as the asset turnover ratio has synonyms.
The turnover ratio can be operating capital or mobile funds.
It is useful to know the synonyms of the coefficient, since there are different literary sources, and everywhere the coefficient is called differently.
But due to the fact that many economists call coefficients in their own way, there is no one specific definition and term for coefficient.
Asset turnover ratio standard
The coefficient is never negative. Its low level indicates that the company has accumulated an excessive amount of working capital.
For the coefficient to become higher, you need to sell what people need and at the same time the product must be high quality and affordable. This increases competitiveness. At the same time, the product production cycle should be lower.
Analyzing the ratio using dynamics will allow you to determine its level and find out whether the organization’s economy is moving well.
Noskova Elena
I have been in the accounting profession for 15 years. She worked as a chief accountant in a group of companies. I have experience in passing inspections and obtaining loans. Familiar with the fields of production, trade, services, construction.
Rational and competent use of the company's resources and funds guarantees its success in the market. An important role is played by the analysis of working capital, in which problematic areas of development lie. In addition, a reliable assessment allows you to analyze the overall policy of the enterprise, identify the main errors and begin to discover reserves for increasing efficiency.
Working capital turnover characterizes the business activity of an enterprise
About the indicator
Indicators of profit, profitability, and liquidity are subject to mandatory calculation. An important role is given to such an indicator as . Its feasibility and the need for regular calculations are discussed at every enterprise; this is evidenced by the fact that it is recommended for its use by the Russian Ministry of Finance.
Note: the indicator is otherwise called the speed of turnover of goods and characterizes the size of the volume of revenue received from sales by the value of the average cost of funds. Demonstrates how profitably and efficiently working capital is used, which allows you to evaluate the overall picture of economic efficiency.
In practice, the value of the period of one revolution is used. Since both are important, their meanings play an important role in the operation of any enterprise.
What does it depend on:
- Industry of the company. For industry, certain values are provided, for construction - others, for the computer sector - third, and for trade - fourth. It is not the general indicator of direction that is taken into account, but its particular values (for example, the seasonality of goods).
- Economic policies applied by management. Qualification and level of preparedness of specialists. Efficiency of making commercial and management decisions.
For each type of enterprise, the optimal value of the parameter is determined.
Calculations
Formulas for calculations
There is no need to use difficult cumbersome formulas for calculations. In principle, there is one method of calculation, which can be deciphered as follows: the value of the indicator is equal to sales revenue divided by the average balance for the reporting period. In another way, these balances are called inventory.
The formula for the working capital turnover ratio is as follows:
The numerator displays the volume of products sold over a certain period, and the denominator displays the average value of the balance of funds for the same time. The parameter demonstrates how many turnovers occurred in funds over a certain period - a quarter, six months, a year.
The turnover time is found by using the following formula
The indicator characterizes how long the company can return its funds as revenue. The T parameter represents the number of days (for a year - 360, for a month - 30).
Calculation example
As we found out, the working capital turnover ratio characterizes the efficiency of their use. Let's consider the calculation procedure and the degree of its significance in any enterprise.
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Let us assume that during the reporting period of one year, products were sold in a quantitative volume equal to 20 million rubles. On average, the balance of inventory for the year amounted to 4 million rubles.
In this case, the calculation will be as follows
Thus, the turnover indicators of working capital are as follows: they manage to complete 5 turnovers every 72 days. For some types of enterprises, this parameter is optimal, but for sales in small enterprises, the turnover ratio should take a greater value.
Finding data for calculations
The question arises about where to find the indicators that are needed to calculate data using the formula. First of all, the main sources of indicators are the data from the company’s financial statements. Required the most important document activities - balance sheet, its application as a profit and loss statement. Data is taken for the period under study.
The volume of quantitatively sold products is the amount displayed on line 10 in the Report - it is this document that contains data on net revenue.
To calculate the average cost of working capital, the sum of the cost is divided in half, that is, the indicator of inventory at the beginning of the year is taken (it equal to the sum TK at the end of the previous one), as well as at the end of the period.
Formula for average cost of working capital
Their amount is divided in half. The question arises about finding data for calculations, and the balance sheet, line code - 290, acts as a reliable source of data.
Factors influencing the indicator
For each enterprise, based on the main industry of its activity, there is a different indicator. There is no specific value that was considered universal and optimal for everyone. The real champions in terms of the parameter value are wholesale and retail due to the specifics of the activity. But companies engaged in the field of culture and science have slightly different indicators, which is quite natural. A timely analysis of working capital turnover will allow you to achieve optimal results in this area.
The values are affected by:
- raw materials used;
- rates and volumes;
- qualification level;
- Kind of activity.
- carrying out indicator analysis.
Note: The turnover ratio alone speaks volumes. If the parameter exceeds one, the enterprise is considered fully profitable. If the value is more than 1.36, this indicates increased profitability, therefore, his policy works as efficiently and efficiently as possible.
Despite this, importance is attached to measuring this indicator not individually, but in dynamics, so that it is possible to compare values. For clarity, accountants and other employees use visual tables that allow them to carry out analytical operations with data and make decisions to stabilize the situation. Positive dynamics indicate good development of the company.
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Let's figure out how to act and where to find indicators. To produce goods, it is not enough to use labor tools (machines, equipment) and employ workers.
It is necessary to have source materials, raw materials, blanks, that is, everything that is needed when creating finished products in the production process. Labor items are required.
To do this, you need to have money to purchase everything you need from suppliers and pay staff for their work.
Objects of labor and money make up the company's working capital. But you need to determine the value of this indicator and know how to write off working capital.
Basic moments
First, let's find out what is meant by this economic expression and what regulations are relevant.
What it is
Working capital is the totality of funds that are turned over and monetary funds in circulation. Working funds are presented:
- raw materials;
- basic and auxiliary materials;
- components;
- unfinished production facilities;
- container;
- other objects of labor.
Why is it needed?
The turnover ratio of tangible working capital reflects the number of times the company used the average indicator of the available balance of working capital in the analyzed period.
According to the balance sheet, current assets consist of:
- stocks;
- money;
- short-term financial investments;
- short-term receivables taking into account purchased assets.
The values can characterize what proportion of current assets and total assets are and how effectively they are managed.
But it is worth remembering that the nuances of the industry in the production cycle are also taken into account. Working capital turnover is an important indicator.
Indeed, with the rapid turnover of company funds, the gap between the funds invested in the production process and the receipt decreases.
The difference between working capital and fixed assets is that they are used in production cycles once, and they can transfer their price to the finished product.
Regulatory regulation
It is important to study the provisions:
- PBU 6/01 according to.
- Guidelines on accounting of fixed assets (), etc.
How to determine the working capital turnover ratio
There are ready-made formulas that can be used to calculate turnover in any industry.
But in many cases it will not be possible to obtain an accurate result, since it is impossible to take into account all factors, and the management of each organization has different knowledge in the field of business.
What does it characterize
Thanks to the working capital turnover ratio, you can determine how efficiently current assets are used. You should rely on the information in the balance sheet.
The turnover ratio is financial indicator to determine how effectively assets and liabilities are used.
It is able to show the business activity of the organization. If the asset turnover ratio is three, it means that the company receives revenue per year that is three times the value of the assets.
Since turnover rates may depend on the industry, it is worth understanding that in a trading company with a large volume of revenue, turnover will be higher.
If the industry is capital intensive, a lower value will be obtained. But it is not correct to assume that turnover will indicate operational efficiency and profitability.
But when carrying out comparative analysis ratios of two organizations, you can see the difference in the performance of asset management.
If the debit debt turnover rate is higher, it means that payments from customers are collected efficiently.
The main goal pursued when managing the company's assets (including working capital) is to increase the profit on invested funds, ensuring the stable and sufficient solvency of the organization.
In order for such a goal to be achieved, it is necessary to constantly have a certain amount in the account, which is actually withdrawn from circulation. Current payments are made using these funds.
Part of the amount should be placed as highly liquid assets. It is important to ensure that the optimal balance between solvency and profitability is ensured.
To do this, they maintain the size and structure of current assets, borrowed funds and their own working capital.
What are the types
The most popular ratios in financial plan analysis:
| Turnover of current assets | What is represented by the ratio of the proceeds of the enterprise in general to the turnover of the amount of the organization’s assets for a specific time |
| Inventory turnover | What shows how management uses jumps in profit and cost figures |
| Accounts receivable turnover | This coefficient will allow you to calculate how much debit debt has been generated |
| Accounts payable | What is necessary for the lender, as it allows you to determine whether payment of the company’s loan is possible |
| Assets | What determines the indicators of many financial turnovers |
| Firm's equity | What can show the effectiveness of the use of funds by an organizational unit |
Formula applied
What positions characterize the coefficient? The indicator depends:
- on the duration of production cycles;
- employee qualifications;
- type of activity;
- pace (performance indicators).
A greater value is typical for trading organizations, and a lesser value for capital-intensive scientific firms.
The formulas are directly proportional equations that are easy to understand.
If you can’t figure them out, you can always contact a specialist who can help with the calculations
So, the formula for determining the asset turnover ratio looks like this:
This formula is used most often. Less commonly used is a formula in which the working capital turnover ratio is calculated as the ratio of the number of days in a year to the capital turnover data.
Any value can be quickly found. For example, information about assets is in the balance sheet, and information about revenue is in the financial statements of the enterprise.
And here is the formula for the current assets turnover ratio:
If the value is large, then we can talk about the growth of the enterprise. Current assets are not taken into account at the beginning/end of the period, which is analyzed. The average annual balance is important.
The numbers for the beginning of the year and the end must be divided by two. In addition to the turnover ratio material resources, the turnover rate is also determined in days that one turnover can take.
So 365 days should be divided by the annual turnover ratio. For example, a coefficient of 3 will show that assets turn over in 121.7 days.
What are the features of calculating the capital turnover ratio of a company? There are no specific rules, just like there is no average value.
Each organization produces its own values, which will vary (depending on the industry). But there is a direct relationship - the higher the coefficient, the higher the return on capital will be.
The formula is:
The company must be able to use intensively inventories and costs to its advantage. Use the formula:
If received great importance, which means the company does not have enough inventory. As a result, unnecessary waste appears.
Formula for determining the debit debt ratio:
There is no average. Everything will depend on the management and industry of the company. How larger number, the faster the company can pay off its debts.
When determining the loan debt turnover ratio, use the formula:
The result will show how intensively the company repays its debts. Can't be certain general meaning coefficients
They are analyzed over time or compared with the indicators of another enterprise in this industry.
If the value is very low and cannot be justified by the characteristics of the industry, it means that the company has excess working capital. If the indicator increases, most often this is a plus for the company.
The turnover of mobile funds will be fast and there will be more proceeds. As turnover accelerates, other performance indicators improve.
Disadvantage - if there is a lot of inventory, it is necessary to organize storage space, which will entail additional costs.
By accelerating turnover, productivity will increase, which means more employees.
Video: determining the efficiency of using working capital of an enterprise
This means that even before planning to increase the ratio, it is worth adjusting the potential profits and costs, which will also increase.
When might turnover decrease? – If the duration of turnover increases due to an unjustified increase in inventories, the emergence of customer debts, and production failures.
After all, as a result, the production of the goods will not be completed. There may also be another reason - demand decreases, and finished goods remain in warehouses longer. Production volume is decreasing.
How to calculate by balance
To set the turnover ratio, you should take information from.
The available information will allow you to find out the value for the year. Any other period cannot be determined from the balance sheet information.
The following formula is relevant:
Let's look at it with an example. The final indicator (with line code 1200) at the end of 2015 is 400 thousand, and in 2016 – 500 thousand. The amount of revenue (with code 2110) at the end of 2015 is 1.5 million, and in 2016 – 1.8 million.
The calculation is as follows:
So, the value of the coefficient is 4, which means that the mobile fund is taken 4 times per year.
Calculation examples
For example, in a year the company sold 5,000 units of products. The cost of one unit is 180,000 rubles. Selling price exceeds cost by 15 percent.
The average annual working capital balance is 145,000,000 rubles. You should set the coefficient value, and also find out how long one revolution lasts and what the load factor is.
This means that for one ruble of goods sold there are 14 kopecks. cost of working capital inventories. One revolution lasts:
Here's another example. The Stepashka organization in 2014 had a profit of 249,239 rubles. The asset turnover indicator at the beginning of the year was 48 thousand rubles, at the end - 34 thousand.
Working capital is a collection Money, advanced to create working capital production assets and circulating funds ensuring 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 natural form and are entirely consumed during the production 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 renewing the production process, which is carried out through the continuous circulation of enterprise funds.
Structure of working capital- this is the ratio between the individual elements of 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 cost of no more than 100 times (for budgetary organizations - 50 times) the established 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 technical 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 an uninterrupted process at the enterprise, working capital or material assets are formed, awaiting their further production 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, by 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 inventory is a batch, a homogeneous group, and a product number.
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 amounts of 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 of working capital is the basis 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 the working capital standard may lead to a reduction in production and failure to fulfill the 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 the financial results 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 the working capital of an enterprise, it 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 this directly affects financial stability and independence of the enterprise, the possibility of obtaining new loans.
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 of products sold (working capital load 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 using 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 is the number of days in the 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 the organization can produce more products, or produce the same volume of products with a smaller amount of working capital.
Accelerating the turnover of working capital is achieved through the introduction of new equipment, 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 accelerate turnover, the following are important: rational organization of logistics and sales of finished products, adherence to savings in the costs of production and sales of products, the use of forms of non-cash payments for products that help speed up payments, etc.
Directly when analyzing the current activities of an organization, the following reserves for accelerating the turnover of working capital can be identified, which consist 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 on working capital. various stages their circulation. These indicators are calculated in the same way as reserves in days, but instead of the balance (inventory) for specific date here the average balance of this type of current assets is taken.
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 make it possible to establish what impact the turnover of individual types of working capital has on the overall turnover indicator. The components of the 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 of 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 we 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) are divided by the 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 turnovers made by the organization's own sources of activity per 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 the year.
When analyzing financial condition and the 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 at a given reporting date, but also in 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, a non-declining part of other accounts payable, unused balances of special-purpose funds (accumulation funds and consumption, 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: unoverdue 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.
The analysis ends with a general assessment of the financial condition of the organization and the drawing up of 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 with its own working capital, their safety and use for their 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. Events are planned for more effective use both equity and debt 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 is necessary to ensure the targeted use of 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 cost of working capital per 1 ruble of sales volume.
Working capital requirement
The enterprise's need for working capital calculated on the basis of 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 the data for the 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
The cost of products sold in the previous year amounted to 2,000 thousand rubles, and in the reporting year compared to the previous year it increased by 10% 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 the current 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 turnover in the reporting quarter = 620*90/3000 = 18.6 days
- Duration of 1 revolution 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
To assess the efficiency of a company, a wide variety of values and indicators are used - one of the most important is the working capital turnover ratio. Let's look at the main nuances, formulas and carry out calculations, tell you what can affect the increase in the efficiency of the enterprise.
Working capital turnover ratio - educational program
A company can function effectively only if its working capital is used wisely and rationally. Depending on the type of activity, " life cycle"(even the time of year matters), this value may vary. However, it is the correct use of them that determines how successful the company will be and how long its activities will generate money.
In order to correctly assess the use of working capital, there are a lot of coefficients to study - they also study the speed of circulation, the level of liquidity and other important characteristics. One of the most important indicators that will help determine the financial condition of the company is the working capital turnover ratio, which shows how many times during the reporting period the company turned over its own working capital by 10%.
In other words, this value shows the efficiency of the enterprise - the higher it is, the better the enterprise uses its resources.
Formulas and given calculations for the coefficient
As we have already said, this coefficient reflects the number of revolutions that working capital makes in a certain time. The formula for calculation is as follows:
Kob = Qp/F ob.av., where:
- Qp – volume of products sold at wholesale prices (excluding VAT).
- F ob.sr – the average balance of working capital that was discovered over a certain period.
In general, the cycle of circulation of funds for a company is a cycle when the funds invested by organizations in their work are returned again after a certain period, but in the form of a finished product. The organization sells the resulting products to customers and again receives money, the amount of which has another name - income.
Thus, the general scheme “money-product-money” shows the cyclical nature of the organization. In this case, the coefficient allows you to show how many similar “circles” the company makes over a certain period of time (most often they take the year as the reporting year). Naturally, for a company to function normally, there should be as many such cycles as possible.
What indicators are needed for calculations?
All data to determine the coefficient must be taken from the company’s reporting documentation - the necessary information is placed in the first and second forms of accounting.
So, if we talk about general cases, then the volume of goods sold by a company is calculated as the revenue that the company received in one cycle (in the future we will adhere to a time period equal to t=1). We take revenue for the specified time from the statement of financial results (profits and losses), where it is written on a separate line as the amount received by the company from the sale of services or goods.
The average balance of working capital is located in the second section of the balance sheet and is calculated using the following formula:
Ф ob.sr = Ф1+Ф0/2, where:
- F1, F0 – the amount of the company’s working capital for current and past periods.
It is worth noting that if we use data for 2015 and 2016, the resulting ratio will be presented as the turnover rate for 2015.
In addition to the working capital turnover ratio, there are some other values in the analysis that help to find out the speed of circulation of capital - many of them are related to this indicator.
So, first of all, this is the duration of one revolution (Tob). To determine given value, you need to calculate the quotient of dividing the number of days that correspond to the period being checked (a year is 360 days, a quarter is 90 days, a month is 30 days) by the value of the coefficient:
Tob = T/ Cob.
If you take this formula into account, you can use it to calculate the duration of one revolution, for which the following formula is used:
Tob = T * F ob.av/ Qp.
Another important indicator that is used to assess financial condition is the utilization rate of funds in circulation (Kzagr). Using this indicator, you can determine the amount of working capital that is required to receive one ruble of revenue from the sale of goods.
In other words, this ratio is called the capital intensity of working capital. For calculation, use the following formula:
Kzagr = F ob.av/ Qp.
As you may have noticed, this value is the inverse of the turnover ratio. This means that the lower this value, the better the company’s efficiency.
Another important indicator for analysis is profitability (Rob.av.), characterized by the amount of profit that the company receives for each ruble of working capital.
His the main task– show the financial efficiency of the company’s activities. the formula for calculating profitability is similar to the values used when calculating the turnover ratio, but instead of sales revenue, profit before taxes is used. The formula is as follows:
Rob.sr. = p/ Ф ob.sr., where
- n is the company’s profit before taxes.
The higher this value is, the better the company performs.
Turnover Ratio Analysis – Step by Step
Before we take a step-by-step look at how to analyze the ratio and how to find ways to increase it, you need to understand what exactly is meant by this indicator.
Under working capital Organizations usually understand the value of assets that have a useful life of less than a year. These include:
- Inventories.
- Finished goods in warehouse.
- Cash.
- Unfinished production.
- Financial investments for a short period.
- Accounts receivable to the enterprise.
Most often, this coefficient has approximately the same value over a long period of time. But this value also depends on the type of activity chosen by the company (for example, for companies in the trade sector this indicator will be the highest, and if we are talking about enterprises in the industrial sector, it will be low), cyclicality (for example, some enterprises are characterized by a “surge” in sales in a certain season) and other factors.
In general, in order to change this value and increase the efficiency of using assets, you should competently approach the organization’s working capital management policy.
For example, to reduce inventories, it is necessary to rationally use available resources, reduce the material intensity of production, losses, and defects. In addition, you should take a competent approach to supplies and their organization, minimizing, for example, costs for delivery or storage. To reduce the amount of work in progress, you need to rationally approach production cycles, reducing the cost of inventory. And to reduce the number of finished products in the warehouse, you need to competently build the company’s logistics and marketing policies.
It is worth noting that even one of the increases listed above can quickly lead to an increase in the turnover ratio. In addition, there are indirect ways to increase the efficiency of using working capital. For example, the indicator will be higher if the company’s profit grows or sales volume increases.
But if, during the analysis, a decrease in value is observed over a long period of time, this may indicate a deterioration in affairs in the company.
For what reasons does the coefficient fall?
There are several reasons that can lead to a decrease in the working capital turnover ratio - this indicator is influenced not only by internal, but also external factors. For example, if a country is experiencing a sharp economic downturn, it is not surprising if the demand for a product falls, and at the same time all the economic indicators of organizations deteriorate.
There are also internal reasons. Among them, the following stand out:
- Errors in management.
- Logistics problems.
- Insufficiently well-tuned marketing campaign.
- Use of outdated equipment.
Most of the problems with reducing this value are associated with the low level of qualifications of employees and management errors. True, in some cases the indicator may decrease for some time due to the modernization of the organization, the transition to new equipment, the use latest technologies. In this case, the change in the ratio is not related to problems in the company.
Simple example for calculation
There is a company called Ecohouse. After analyzing its activities for 2015, we received information that revenue from the sale of goods amounted to 100 thousand rubles. The amount of working capital for the period under study was 35 thousand rubles in 2014 and 45 thousand in 2015. Using this information, let's make calculations:
Kob = 100 rubles/((45+35) /2).
The coefficient will be equal to 2.5, which means that the value of the turnover cycle of the Ecohouse company in 2014 was:
Tob = 360/25.
According to this formula, production cycle in the company is 144 days.