In feng shui and in general in China, water is considered the primary element, the basis of all life...
To calculate the balance sheet of an enterprise. It is these numerical characteristics that are an indicator of the profitability and well-being of the company.
Fixed and working capital are components of the company's capital, which are financial, material and intellectual values that are the property of the company and serve in the process of activity to make a profit. The entrepreneurial idea of the founder of the company determines the required amount of capital.
It is known that no company can be formed and start functioning without the initial capital, which is put into circulation at the very beginning. The successful launch of an entrepreneurial idea and the retention of a competitive position in the market by a new business depend on its correct miscalculation and planning of all financial transactions at the initial stage. Therefore, a novice businessman, while planning the process of implementing his undertaking, should carefully estimate the allowable minimum and maximum possibilities of financial resources available and necessary to achieve the goal. The determination of the required amount of initial capital is made depending on the industrial sector in which the business idea is supposed to be implemented.
When calculating the required initial capital, the distribution of such capital into circulating and fixed capital is of great importance. During planning, it is also very important to determine which is a mandatory element in the calculation of the initial capital.
What does the division into fixed and working capital mean?
Main capital
It includes buildings land, transport, equipment, tools, machine tools, innovative property, patents, licenses.
That is, it is the movable and immovable property of the company, which has a specific value determined using depreciation methods. accounting for this time period. Fixed assets take part in the production process for several years and transfer their value to finished products or goods in stages, over several years.
In concept working capital includes everything that is planned to be used for employees of the enterprise, as well as for production or sale.
The main working capital has the following components:
Cash (salary fund, cash on hand, the amount of cash for the purchase of raw materials, materials or goods);
Material assets (non-durable tools, manufacturing materials, raw materials, products or purchased goods for sale).
The ratio of working and fixed capital
Determining the structure and ratio of parts of working and fixed capital, it is necessary to take into account the proportional correspondence of all parts in its total volume. These miscalculations are of great importance when choosing to purchase a building for an office and production workshops or retail space and equipment. If you do not take into account the finances spent to the amount of money left for working capital, that is, raw materials, goods for sale, money for their purchase, funds for the salaries of employees, then the company at the very beginning can simply “suffocate”, that is, stop activities. Therefore, the larger the scale of the enterprise's work, the greater the need for an increased amount of working capital.
Depending on the industry, fixed and working capital also has a different ratio. It is determined depending on the complexity, material consumption, as well as the labor intensity of the products.
Working capital
WORKING CAPITAL
(floating capital) Funds available to run the business, including those invested in publicly traded investments.
(working capital) The portion of a company's capital that is involved in its day-to-day business activities. It consists of current assets (mainly inventory, receivables and cash) minus current liabilities (mainly accounts payable). In a normal business cycle—supplier delivering goods, selling inventory without prepayment, paying for goods in cash, using cash received to pay suppliers—working capital is a measure of net assets in circulation, sometimes referred to as working assets.
Finance. Dictionary. 2nd ed. - M.: "INFRA-M", Publishing house "Ves Mir". Brian Butler, Brian Johnson, Graham Sidwell et al. Osadchaya I.M.. 2000 .
Working capital
Working capital - capital involved and fully spent during one production cycle. Working capital includes:
- material working capital;
- cash;
- short-term financial investments;
- funds in current settlements.
In English: working capital
Synonyms: revolving fund
English synonyms: Current capital, floating capital
Finam Financial Dictionary.
Working capital
1. Part of the productive capital, the value of which is completely transferred to the produced goods and returned in cash after its sale. The portion of a company's capital that is involved in its day-to-day business activities. It consists of current assets (primarily inventory, receivables and cash) minus current liabilities (primarily accounts payable). In a normal production and trade cycle - supplier supply of goods, sale of inventory without prepayment, payment for goods in cash, use of cash received to pay suppliers - working capital is a measure of net assets in circulation, sometimes called current assets.
The share of the company's capital invested in current assets, in fact, all current assets. Net working capital is the difference between current assets and current (short-term) liabilities.
2. Excess of current assets over short-term liabilities, allowing the company to finance its ongoing operations; company funds that can be quickly converted into cash. Working capital is formed from cash, marketable securities, receivables, inventories, finished products, work in progress, materials, components and deferred expenses. The location of the components of working capital is based on the liquidity criterion - the ability to convert enterprise funds into cash - an important indicator of a company's performance, by which the stability of its financial position is assessed.
Terminological dictionary of banking and financial terms. 2011 .
See what "Working Capital" is in other dictionaries:
working capital- net working capital The difference between current assets and current liabilities. Sometimes also called working capital. working capital The current assets of a company (enterprise), primarily ... ... Technical Translator's Handbook
- (working capital) The part of an enterprise's capital that is not invested in land, buildings, or capital equipment. Working capital is used to maintain liquid balances, pay wages, purchase materials, and extend credit... ... Economic dictionary
- (circulating capital, working capital) 1. Part of the company's capital, which is involved in its daily business activities. It consists of current assets (current assets) (mainly inventory, receivables ... ... Glossary of business terms
Working capital- (working capital, current capital) current assets of the company (enterprise), primarily cash, reserves, receipts (gross working capital); usually refers to net working capital (net working capital) capital, which ... ... Economic and Mathematical Dictionary
Working capital is the concept of classical economics by Adam Smith. One of the basic concepts political economy K. Marx. Not to be confused with the accounting term own working capital. Categories: Capital Economic terms Factors ... ... Wikipedia
The cost of raw materials, materials, labor, which are fully included in the price of products and are returned in cash after its sale ... Big Encyclopedic Dictionary
working capital- the most mobile part of the company's capital, which, unlike fixed capital, is more fluid and easily transformable into cash. It is customary to refer to working capital as cash, easily realizable valuable ... ... Dictionary of economic terms
working capital- 1) see working capital (capital); 2) in a broad sense, working capital, i.e., the sum of all funds in circulation with a given enterprise, both its own and those of others, but minus illiquid ones (see liquidity) ... Reference commercial dictionary
The cost of raw materials, materials, labor, which are fully included in the price of products and returned in cash after its sale. * * * WORKING CAPITAL WORKING CAPITAL, the cost of raw materials, materials, labor, which are completely ... ... encyclopedic Dictionary
Working capital- WORKING CAPITAL Short-term current assets (see Current assets), which are relatively quickly turned around in the course of the company's economic activity. Working capital is raw materials, work in progress and stocks of finished ... ... Dictionary-reference book on economics
Books
- Enterprise Economics (CD), Tatyana A. Vais, Vitaliy Sergeevich Vasiltsov, E. N. Vais. C D (COMPACT DISC) The electronic textbook "ENTERPRISE ECONOMY" is intended for students and university professors, heads of enterprises and organizations. It is based on educational…
A firm's capital turnover is the difference between the company's current assets and its short-term liabilities.
net worth
Under the term "net capital" I understand the difference between the total amount of assets that are on the balance sheet of the enterprise, and the amount of all liabilities. If the amount of assets exceeds the amount of liabilities, this indicates a positive net worth. Accordingly, net equity is negative when the company has more liabilities than assets.
The indicator of net capital is very important for a corporation, since a positive value indicates a stable financial condition of an economic entity. If the amount of assets significantly exceeds the amount of liabilities, the firm is highly stable. There is also relative stability - when the difference between assets and liabilities is insignificant.
Circulation of capital
The turnover of capital is a process that begins with an investment in production, and ends with the fact that products are produced, work is performed or services are provided. The turnover of capital is a continuous process. Its duration is determined by how quickly the advanced funds will make a full turnover and when the owner of the company will receive from him the effect in the form of cash (sometimes in the form of a social effect).
The peculiarity of capital turnover lies in the fact that the funds invested by the owner in production are not fully returned. The thing here is that, in addition to working capital, fixed assets take part in the production process, which are assets that transfer their value to finished products in parts, and are also consumed over several years.
Long term capital
Fixed assets (OS) are assets that are able to participate directly or indirectly in the production process. Their distinguishing feature is that the fixed assets can be used for many years, and their value is transferred to the cost of parts by way of depreciation.
These include structures, buildings, vehicles, equipment, etc.
Determination of OS efficiency
There are a number of parameters that are used in the economics of enterprises to calculate the effectiveness of using the firm's OS. These include the following ratios:
- Provision of fixed capital.
- Armed with capital.
- Return of fixed assets.
- Capital intensity.
PF security
The first of the indicators that is used to assess the use of the OS is the security. It is defined as the ratio of the value of fixed capital to the area of agricultural land. It must be remembered that this parameter can only be used to assess the effectiveness of the funds of agricultural enterprises. The calculation of the coefficient is presented below:
- About \u003d Cs.g. / P, where
About - capital security;
Ss.y. - the cost of capital on average per year;
Ps.u. - area of agricultural land.
Armament
This index shows the amount of fixed assets, which falls on one average annual employee of the enterprise:
- B \u003d Cs.g / K, where
B - armament with capital;
K is the average annual number of the company's staff;
Сс.г - the value of fixed capital on average per year.
recoil
The return on assets is calculated as the ratio of all products in monetary terms, which was manufactured by the company during the analyzed period, to the cost of fixed assets for the period on average. This ratio plays an important role in assessing how effectively the company is able to use its own fixed assets. An increase in the parameter is considered a positive trend, since this means that the volume of output per one monetary unit of the cost of fixed capital is growing. The normative value of capital productivity is more than one.
- From = VP / Ss.g., where
From - capital productivity;
VP - all gross products of the company in monetary terms;
Ss.y. - the cost of capital on average per year.
Capacity
Capital intensity is the inverse indicator of capital productivity. It can be calculated in the following ways:
- E \u003d (From) -1 \u003d 1 / From, where
E - capital intensity;
From - capital productivity.
Also, the indicator can be calculated as the ratio of the value of fixed capital to the value of gross output created during the reporting period.
- E \u003d (Сс.г. / VP), where
E - capital intensity;
VP - the cost of gross output, which was produced by the enterprise for the reporting period;
Ss.y. - the average cost of fixed capital for the reporting period.
The company needs to strive to increase the rate of return on assets. This will mean that the underlying capital is being used effectively. At the same time, the fixed capital ratio will decrease.
Working capital
These are the means of the enterprise that take part in the production process, are completely consumed, being part of the cost of production, and are used during one production cycle. Examples of working capital are raw materials, money, wages company personnel, etc.
In the balance sheet of the enterprise, working capital is displayed in the second section of the asset. The components of this type of assets are:
- Company stocks.
- Unfinished production.
- The finished product of the company.
- Accounts receivable.
Liquidity
Liquidity - the ability of assets to be converted into money in order to repay the company's current debt. This one is at the center of all constituent components of working capital.
Each asset of the company has a different degree of liquidity. Non-current assets are the least liquid. The money that is in the company's cash desk and on its accounts is an absolutely liquid asset.
Liquidity indicators
All assets according to the degree of their liquidity are divided into four categories:
- Most liquid.
- Assets that can be sold in the shortest possible time.
- Assets that cannot be sold quickly.
- Difficult to implement.
Each of the four groups of assets corresponds to four groups of funding sources:
- Urgent.
- Short term.
- Long-term.
- permanent liabilities.
Such a classification was carried out in order to be able to determine the liquidity of the entire enterprise as a whole. The company is considered liquid when the amount of each type of assets on the balance sheet exceeds the amount of the corresponding liability.
Indicators for assessing the solvency of an enterprise
To determine the level of liquidity of an enterprise, the following indices are used:
- coverage ratio.
- Quick liquidity ratio.
- Absolute liquidity ratio.
Each of these indexes shows how quickly a company is able to convert its assets into money in order to pay off current accounts payable.
- KP \u003d (Ob. A - ZU) / TO, where
KP - coverage ratio (the second name of the indicator is the company's current liquidity ratio);
About. A - current assets of the enterprise;
ZU - debts of founders on contributions;
TO - liabilities of a short-term nature (current).
This indicator measures how quickly a firm is able to pay back its short-term debt using only working capital.
The second indicator - urgent liquidity - reflects the company's ability to extinguish all its current liabilities if it has problems with the sale of products. The coefficient can be calculated as follows:
- Ksl \u003d (TA - Z) / TO, where
Kcl - quick liquidity ratio;
TA - current assets of the firm;
З - stocks;
TO - current liabilities.
The last indicator for calculating the company's solvency is called absolute liquidity. The calculation formula is as follows:
- Kal \u003d D / TO, where
Cal - absolute liquidity ratio;
D - money, as well as their equivalents;
TO - current liabilities.
The value of this parameter should be approximately 0.2. This means that every day the company is able to repay 20 percent of its current liabilities. The index shows what percentage of its obligations the company is able to repay in the shortest possible time.
Determination of the effectiveness of the use of working capital
As in the case of the fixed capital of an enterprise, there are indicators that characterize how effectively the company uses its working capital. There are three options in total:
- turnover ratio.
- duration of capital turnover.
- Load factor.
Turnover and working capital utilization
The first and main indicator in assessing the efficiency of capital use is the turnover ratio. This parameter is analogous to the return on assets indicator, which is used to calculate the effectiveness of fixed assets.
- Kob \u003d RP / Oob, where
The indicator indicates how many turnovers of working capital are made in one specific period. For the enterprise, it is considered positive when this coefficient increases.
The reverse index is the load factor. It can be calculated like this:
- Kz \u003d Oob / RP \u003d 1 / Kob, where
Kz - load factor;
Cob - turnover ratio;
RP - sold products in monetary terms in a certain period;
Oob - the balance of working capital.
Capital turnover
This ratio is calculated based on the turnover ratio. The calculation formula is as follows:
- Pob \u003d D / Kob, where
Pob - the period of turnover of working capital;
D - the number of days;
Cob - turnover ratio.
The calculation is based on the number of days in the period. It can be a quarter, a month, six months or a whole year. Most often, the efficiency of capital turnover during the year is analyzed.
The value of the coefficient depends on the turnover ratio. A positive trend for an enterprise is considered to be a decrease in the turnover period, since this means that the turnover ratio is growing, and with it the rate of capital turnover is also growing. The faster the capital rotates, the more attractive the firm is for investors.
Rate of return
The last of the indicators that are commonly used to determine how capital is used is the rate of return. This indicator takes into account both current and fixed assets. The company's rate of return is calculated as the ratio of profit to the total cost of capital of the company.
- Np \u003d P / (Co.s. + Sob.s.) * 100%, where
Np - rate of return;
P - profit;
SOS. - cost of fixed assets;
Sob.s. - cost of working capital.
There are several ways to improve the efficiency of the use of working capital. First, the company can optimize its inventory. Secondly, attention should be paid to the growth rate of working capital. It is also necessary to increase the volume of sales of products. At the same time, the rate of increase in sales should exceed the rate of increase in fixed assets.
The efficiency of using the capital of an enterprise seriously affects the result economic activity. Any company should strive to more rationally use its capital, which will give it the opportunity to increase the number of products and profits.
The entrepreneur invests and launches capital into production not for the sake of a one-time profit, but for the purpose of continuous increment capital cost. This becomes possible thanks to the very form of movement of production assets - the form of circulation. The circulation of capital ends in the same natural form that it began, and therefore, it can be repeated again and again.
The circulation of industrial capital (production assets), considered as a continuously repeating process, forms its turnover. The turnover of capital assumes that all the capital advanced will increase in value and return in its original natural form.
The time during which this process takes place is called time of capital turnover. The turnaround time depends on the specifics of the investment industry. In heavy industry, capital turns over, as a rule, more slowly than in light industry. For every entrepreneur it is not indifferent how soon the capital will complete its turnover. In order to reduce the turnaround time, measures are being taken to rationally organize the production process, which makes it possible to eliminate downtime. Technological innovations play an important role, making it possible to speed up such production processes as wood drying, painting and drying products, catalyzation chemical reactions etc. Reducing the turnaround time also depends on the efficiency of logistics, the time of transportation of products and the speed of its implementation on the market.
If we compare the turnover time of capital with some conditionally accepted unit, for example, with a year, we will get an idea of the number of turnovers made by capital per year. This indicator will characterize capital turnover rate. So, if the turnover time of capital is 4 months, then the turnover rate is 3 turnovers per year.
Different elements of production assets make their turnover differently. From this point of view, productive capital is divided into basic and negotiable(fixed and working capital).
Main capital. The tangible carriers of fixed capital are, as a rule, the means of labor: industrial buildings, machines, equipment. The means of labor participate in the production process as a whole, but transfer their value to the product in parts as they wear out. This determines the features of the turnover of fixed assets. In the course of turnover there is a kind of bifurcation of their value. One part, transferred to the product, enters the circulation process, completes the circuit and returns to the entrepreneur in the form of money after the sale of the goods. Accumulating, this part of the cost forms a fund for the replacement of fixed capital, or an amortization fund.
The other part exists in the form of the residual value of the instruments of labor that continue to function in the production process. As it wears and amortizes, the residual value will decrease and the replacement fund will increase. The turnover of fixed capital will be completed when all parts of its value have gone through their circuit and returned to the entrepreneur in cash, which will make it possible to purchase new equipment, build new plant to replace worn out old ones. In other words, all parts of the capital will return to their original natural form and complete a full turnover in value.
The intensified competition in the conditions of the scientific and technological revolution is forcing entrepreneurs to renew fixed assets before the period of their physical depreciation ends. The growing threat of obsolescence of equipment has led to the spread of the practice of accelerated depreciation, which makes it possible to form a fund for the replacement of fixed capital in 3-5 years. This becomes possible due to the fact that not only parts of the value of fixed capital that are actually transferred to the product in connection with wear and tear but also some share of the profit. This practice makes it possible to reduce taxable profits, avoid the risk of obsolescence and depreciation of fixed capital, and generate significant self-financing resources necessary for further development and modernization of production. In many countries, the practice of accelerated depreciation is encouraged by the state in order to upgrade fixed assets.
In Russia in the 1990s, intensive aging of fixed assets was observed. The depreciation rate of fixed assets (in % of their total value) in industry increased from 36% in the 1980s to 48.5% in 1995. In many industries, the depreciation rate in 1996 was even higher: in the oil refining industry - 63% , in the chemical and petrochemical industry - 59.7%, in the fuel industry - 52.6%. Average age production equipment in the industry in 1970 was 8.42 years, and in 1996 - already 14.9 years. In 1996, 64.3% of the equipment was more than 10 years old compared to 30% in 1970. As for the equipment under the age of 5 years, its share in 1996 was only 8.7%, while in 1970 it was 8.7%. it was 40.8%.
The coefficient of renewal of fixed assets (commissioning of new funds, in % of the total value of fixed assets) decreased from 6.0 in 1990 to 1.5 in 1996. The retirement rate (liquidation of fixed assets, in % of their total value) was in 1996 also 1.5. This means that the former size of the country's fixed assets is only barely maintained at the expense of new funds.
Working capital. Material and material carriers of working capital are, as a rule, objects of labor (raw materials, materials, fuel) and labor force functioning in the production process.
The objects of labor are consumed completely in their natural form in the course of one production cycle and fully transfer their value to the finished product. After the sale of goods, the value of the objects of labor returns to the entrepreneur in the form of money at each circulation of capital. Then there is a compensation of objects of labor in kind to ensure the next production cycle. In a similar way, low-value means of labor (small tools) are completely consumed in the process of one circuit. Such elements of means of labor can also be classified as working capital.
Labor power in the process of production does not transfer its value to the product either immediately or gradually. It creates new value. However, in terms of the nature of the turnover, variable capital does not differ from circulating capital. The value of the labor force reproduced during one production cycle, after the sale of the goods, returns to the entrepreneur in cash and can be used to hire labor in the next production cycle.
It should be noted that productive capital, both fixed and circulating, includes only its material elements and labor force that actually function in the production process. Such a phenomenon as the purchase of materials, semi-finished products, components, equipment for the future does not fit into the practice of rational economic management and leads to the deadening of capital and a decrease in the rate of its turnover. The spread of contractual relationships that guarantee deliveries to the exact day and hour allows modern enterprise to work "from the wheels" with a minimum supply of raw materials and materials.
B. BEHAVIOR OF AGENTS IN THE FACTOR MARKET
- See: Russian Statistical Yearbook. 1997. M., 1998. S. 339, 340.
Darron Kendrick is an Accounting and Law Lecturer at the University of North Georgia. He received his master's degree in tax law from Thomas Jefferson Law School in 2012 and was certified by the Alabama Board of Public Accountants in 1984.
Number of sources used in this article: . You will find a list of them at the bottom of the page.
Working capital is a set of cash and liquid assets that are necessary to finance the activities of the company. Knowing the amount of working capital, you can more effectively manage the company and make investment decisions. The value of working capital characterizes the ability and speed of repayment of the company's current liabilities. If a company does not have working capital or it is very modest, then most likely it will not be successful. The working capital calculation is also useful for estimating effective use company resources. Formula for calculating working capital:
Working Capital = Current Assets - Current Liabilities
Steps
Part 1
Working Capital Calculation- As a rule, current assets and their total value are indicated in the company's balance sheet.
- If there is no total of current assets on the balance sheet, go through the entire balance sheet and look for items related to current assets. Add the point values corresponding to the definition of current assets to get the total value of current assets. For example, add the values of the following items on the balance sheet: "Accounts receivable", "Inventory", "Cash and cash equivalents".
-
Calculate current liabilities. Current liabilities are liabilities that must be paid within one year. Current liabilities are term liabilities, accounts payable and short-term debt obligations.
- As a rule, current liabilities and their total value are indicated in the balance sheet of the company. If there is no total current liability on the balance sheet, go through the entire balance sheet, find the items related to current liabilities, and add their values. For example, add up the values of the following items on the balance sheet: "Accounts payable", "Unpaid taxes", "Short-term loans".
-
Calculate working capital. To do this, subtract the value of current liabilities from the value of current assets.
Part 2
Understanding and managing working capital-
Calculate the liquidity ratio. To analyze the financial condition of a company, many financiers use the current liquidity ratio. To calculate the current liquidity ratio, you need to know the current assets and current liabilities, but as a result, you will get not the amount in rubles, but the ratio.
Analyze the financial condition of the company using the current ratio. This ratio characterizes the ability of the company to repay its current financial obligations, that is, pay its bills. Typically, this ratio is used when analyzing different companies or industries.
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Working capital management. Company executives must monitor the values of the values that make up working capital in order to maintain them at an optimal level. Such values are inventory, receivables and payables. Managers should evaluate the possible positive and negative aspects associated with an excess or lack of working capital.
- For example, a company that lacks working capital will not be able to pay current liabilities. On the other hand, excessive working capital is also a negative indicator, since excess capital should be invested in the development of the company in order to increase its profitability. For example, excess working capital can be invested in the acquisition of additional production capacity or in the expansion of the number of stores. retail. Such investments will lead to an increase in the company's income.
- If a company is experiencing an excess or shortage of working capital, read the Tips section to learn how to reduce or increase working capital.
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Calculate current assets. Current assets are assets that can be converted into cash within one year. These assets include cash and short-term capital. For example, accounts receivable, prepaid expenses, and inventory are current assets.
