Determine how the turnover of working capital has changed. Working capital turnover ratio

WORKING CAPITAL

The production process requires not only buildings and equipment, product licenses and other types of fixed assets and intangible assets. The production process also requires raw materials, spare parts and semi-finished products, as well as other resources that are included in working capital. Working capital, along with non-current assets, is the most important production factor

Working capital- this is money invested in raw materials, fuel, work in progress, finished but not yet sold products, as well as money necessary to service the circulation process

A characteristic feature of working capital is the high speed of their turnover. The functional role of working capital in the production process is fundamentally different from fixed capital. Working capital ensures the continuity of the production process.

The material content of working capital is objects of labor, as well as means of labor with a service life of no more than 12 months.

Material elements of working capital (labor items) are consumed in each production cycle. They completely lose their natural form, therefore they are fully included in the cost of manufactured products (work performed, services rendered).

Composition, structure and classification of working capital

Under composition of working capital it is necessary to understand the elements included in their composition (Fig. 1):

Industrial inventories (raw materials and basic materials, purchased semi-finished products, auxiliary materials, fuel, spare parts...);

Unfinished production;

Future expenses;

Finished products in warehouses;

Products shipped;

Accounts receivable;

Cash in the company's cash register and bank accounts.

Raw materials is a product of the extractive industries.

Materials represent products that have already undergone certain processing. Materials are divided into basic and auxiliary.

Basic– these are materials that are directly included in the composition of the manufactured product (metal, fabric).

Auxiliary – these are the materials necessary to ensure the normal production process. They themselves are not included in the finished product (lubricants, reagents).

Semi-finished products– products completed by processing at one processing stage and transferred for processing to another processing stage. Semi-finished products can be own and purchased. If semi-finished products are not produced at

own enterprise, but are purchased from another enterprise, they are classified as purchased and are included in production inventories.

Figure 1 – Elemental composition of working capital

Unfinished production - These are products (works) that have not passed all the stages (phases, processing stages) provided for by the technological process, as well as incomplete products that have not passed testing and technical acceptance.

Future expenses- these are expenses of a given period that are subject to repayment at the expense of the cost of subsequent periods.

Finished products represents fully finished finished products or semi-finished products received at the enterprise warehouse.

Accounts receivable– money that individuals or legal entities owe for the supply of goods, services or raw materials.

Cash– these are funds located in the cash register of the enterprise, in bank accounts and in settlements.

Based on the elemental composition of working capital, you can calculate them structure, which represents the share of the cost of individual elements of working capital in their total cost.

According to the sources of education, working capital is divided into own and borrowed (borrowed). Own working capital is formed at the expense of the enterprise's own capital (authorized capital, reserve capital, accumulated profit, etc.). Borrowed working capital includes bank loans, as well as accounts payable. They are provided to the company for temporary use. One part is paid (credits and borrowings), the other is free (accounts payable).

In different countries, different ratios (standards) are used between equity and debt capital. In Russia, the ratio is 50/50, in the USA – 60/40, and in Japan – 30/70.

According to the degree of controllability, working capital is divided into standardized and non-standardized. Standardized assets include those working capital that ensures continuity of production and contributes to the efficient use of resources. These are inventories, deferred expenses, work in progress, finished goods in warehouse. Cash, shipped products, and accounts receivable are classified as non-standardized working capital. The absence of standards does not mean that the amounts of these funds can be changed arbitrarily. The current procedure for settlements between enterprises provides for a system of sanctions against the growth of non-payments.

Standardized working capital is planned by the enterprise, while non-standardized working capital is not an object of planning.

Circulation of working capital. Turnover indicators

Working capital is in constant motion. The circulation of capital covers three stages: procurement, production and marketing.

Any business starts with a certain amount of cash, which is invested in a certain amount of resources for production.

At the production stage, resources are embodied in goods, works or services. The result of this stage is the transition of working capital from the production form to the commodity form.

After the sale of the produced product, working capital from the commodity form again passes into money. The sizes of the initial amount of money and proceeds from the sale of products (works, services) do not coincide in size. The resulting financial result of the business (profit or loss) explains the reasons for the discrepancy (Fig. 2).

The time required for a complete turnover of working capital is called turnover time (period) working capital.

The time (duration) of turnover of working capital is one of the indicators turnover. Another indicator of turnover is the turnover ratio.

Turnover ratio- this is the number of revolutions that working capital makes over a certain period; it is calculated using the formula:

Where R– volume of products sold for the period under review;

OS– the average amount of working capital for the same period.

The time (duration) of turnover is usually called turnover in days. This indicator is determined by the formula:

Where D– the number of days in a given period (360, 90, 30);

TO about– turnover ratio:

After substituting the corresponding quantities into the formula, you can obtain a detailed expression for the turnover indicator:

At each stage of the circulation of working capital, it is possible to determine the private turnover of each element of working capital:

Partial turnover indicators can be calculated based on specific turnover. A special turnover for material inventories is their consumption for production, for work in progress - the receipt of goods at the warehouse, for finished products - shipment, for shipped products - their sale.

Average for the period, the amounts of working capital used in calculating turnover indicators are determined using the average chronological formula. The average annual amount (average annual working capital balances) is found as the arithmetic average of four quarterly amounts:

The quarterly average amount is calculated as the average of three monthly averages:

The expression used to calculate the average monthly amount is:

The amount of working capital at the disposal of the enterprise must be large enough so that the circulation process is not interrupted. At the same time, the presence of excess working capital negatively affects the results of its activities.

Figure 2 – stages of circulation of working capital

Methods for determining the need for working capital

Effective use of working capital largely depends on the correct determination of the need for working capital. An underestimation of the amount of working capital entails instability of the financial situation, interruptions in the production process and a decrease in production volumes and profits. Overestimation of the size of working capital reduces the ability of the enterprise to make capital expenditures to expand production (Fig. 3).

The need for working capital depends on many factors: production and sales volumes; the nature of the enterprise's activities; duration of the production cycle; types and structure of consumed raw materials; growth rates of production volumes, etc.

Figure 3 – Optimal amount of working capital

An accurate calculation of the enterprise's need for working capital should be based on the time spent by working capital in the sphere of production and the sphere of circulation.

The residence time of working capital in the production sector covers the period during which working capital remains in the state of inventory and in the form of work in progress.

The period of stay of working capital in the sphere of circulation covers the period of their presence in the form of balances of unsold products, in the form of shipped but not yet paid products, accounts receivable, in the form of cash in the cash register of the enterprise, in bank accounts.

The higher the turnover rate (the total time spent in the sphere of production and circulation), the lower the need for working capital.

The company is interested in reducing the size of its working capital. But this reduction must have reasonable limits, since working capital must ensure normal operation.

When determining the optimal need for working capital, the amount of money that will be advanced to create inventories, backlogs of work in progress and the accumulation of finished products in the warehouse is calculated. For this, three methods are used: analytical, coefficient and direct counting method.

Essence analytical, or the experimental-statistical method is that when analyzing existing inventory items, their actual inventories are adjusted and excess and unnecessary values ​​are eliminated.

At coefficient method, amendments are made to the standard of the previous period for the planned change in production volumes and for the acceleration of turnover.

Analytical and coefficient methods can be used in those enterprises that have been operating for more than a year, have formed a production program and organized the production process, have statistical data for previous years and do not have a sufficient number of qualified specialists for more detailed work in the field of working capital planning.

Method direct account provides for the calculation of inventories for each element of working capital. This method is used when organizing a new enterprise and periodically clarifying the working capital needs of an existing enterprise.

General standards of own working capital are determined in the amount of their minimum requirement for the formation of reserves of raw materials, materials, fuel, work in progress, deferred expenses, finished products.

The general working capital standard consists of the sum of private standards:

Where N P h – standard of production reserves;

N np– work-in-progress standard;

N gp– finished product standard;

N br – standard for future periods.

The production inventory standard depends on the average daily consumption of raw materials, fuel materials and the stock standard in days:

Where R With – average daily consumption of a given type of raw material or materials ( in rubles);

T days – stock norm in days

The average stock norm in days is calculated in general as a weighted average of the working capital stock norms for individual types.

The stock norm in days for a particular type is made up of the following components:

Where T tr – transport stock;

T tech – current warehouse stock;

T page – insurance (warranty stock);

T season – seasonal stock.

Transport stock is established by the length of time it takes the cargo to travel from the supplier to the consumer, taking into account the time of document flow.

If there are several suppliers, then the transport stock is determined as a weighted average value, taking into account the duration of the run and the size of the supply:

Delivery volume, t Cargo travel time, days.

1st supplier 20 15

2nd supplier 30 14

3rd supplier 10 12

T tr = (20 ×15 + 30 × 14 + 10 ×12) \ (20 + 30 + 10) = 14 days,

Figure 4 – Current warehouse stock

Current warehouse stock material assets are called a stock that meets production needs for the period between the two next arrivals of their suppliers (Fig. 4).

The composition of working capital includes the average current stock, taken in the amount of 50% of the duration of the interval between two adjacent deliveries:

Where AND– duration in days of the interval between deliveries.

The average interval between deliveries can be calculated using the formula:

Where P – number of deliveries for the period

Warranty (insurance) stock material assets is a reserve intended to meet the needs of production in case of a delay in the receipt of material assets.

The amount of safety stock is usually set within 50% of the current stock. This limit increases if the enterprise is located far from suppliers, the materials consumed are unique, and the manufactured products require many components or components from different suppliers.

Seasonal stock is calculated at enterprises with seasonal supplies of raw materials.

Amount of working capital for work in progress is determined taking into account the duration of the production cycle and the value of the cost increase coefficient:

Where IN– volume of average daily production at production cost;

T ts – duration of the production cycle;

TO ne – coefficient of increase in costs in work in progress

Production cycle refers to a number of production processes performed in the manufacture of products.

Production cycle time consists of the time spent directly on operations for processing raw materials, materials, workpieces, and the time required for breaks between operations from the start of the first operation to the delivery of finished products to the warehouse.

Cost increase factor characterizes the degree of product readiness and is determined by the ratio of the cost of work in progress to the cost of finished products.

The increase in costs can be uniform and uneven (slow and accelerated).

At uniform increase in costs the cost increase coefficient is found using the formula:

Where WITH n– the cost of raw materials and materials entering the production process;

WITH To– cost of finished products.

At uneven increase in costs Cost growth factors are first determined at several points in the production process:

Where TO i– coefficient of increase in costs at the i-th point;

WITH i– the cost of work in progress at the i-th point;

WITH To– cost of the finished product.

The overall cost increase factor for the process is calculated as the average value:

Where TO nz– general cost increase coefficient for the process;

i– number of points for calculating partial coefficients.

The amount of working capital invested in finished product inventories in the warehouse depends on the average daily output of products and the duration of storage of products in the warehouse:

Where IN– average daily output at production cost;

T xp– the average duration of storage of finished products in the warehouse.

The duration of storage of products in the warehouse, in turn, is calculated as the sum of the time for the formation of a batch of products for shipment and the preparation of documents for this batch:

Where T FP– time required to form a batch for shipment of finished products to the consumer, days;

T od– time required to prepare documents for sending cargo to the consumer, days.

Calculated in one way or another, the amount of working capital required for normal operation increases the efficiency of using this resource.

Turnover ratio– a parameter by calculating which one can estimate the rate of turnover (use) of specific liabilities or assets of the company. As a rule, turnover ratios act as parameters of an organization's business activity.

Turnover ratios– several parameters that characterize the level of business activity in the short and long term. These include a number of ratios - working capital and asset turnover, accounts receivable and payable, as well as inventories. This category also includes equity and cash ratios.

The essence of the turnover ratio

The calculation of business activity indicators is carried out using a number of qualitative and quantitative parameters - turnover ratios. The main criteria for these parameters include:

Business reputation of the company;
- presence of regular customers and suppliers;
- width of the sales market (external and internal);
- competitiveness of the enterprise and so on.

For a qualitative assessment, the obtained criteria must be compared with similar parameters from competitors. At the same time, information for comparison should be taken not from financial statements (as is usually the case), but from marketing research.

The criteria mentioned above are reflected in relative and absolute parameters. The latter include the volume of assets used in the company’s work, the volume of sales of finished goods, and the volume of its own profit (capital). Quantitative parameters are compared in relation to different periods (this can be a quarter or a year).

The optimal ratio should look like this:

Growth rate of net income > Growth rate of profit from the sale of goods > Growth rate of net assets > 100%.

3. Turnover ratio of current (working) assets displays how quickly it is accessed and used. Using this coefficient, you can determine how much turnover current assets made over a certain period (usually a year) and how much profit they brought.

In the article we will consider working capital turnover as one of the most important indicators for assessing the financial condition of an enterprise.

Working capital turnover

Working capital turnover (English Turnover Working Capital) is an indicator related to the company and characterizing the intensity of use of working capital (assets) of the enterprise/business. In other words, it reflects the rate of conversion of working capital into cash during the reporting period (in practice: year, quarter).

Formula for calculating working capital turnover

Working capital turnover ratio (analogue: fixed asset turnover ratio, K ook) – represents the ratio of sales revenue to the average working capital.

The economic meaning of this coefficient is an assessment of the effectiveness of investing in working capital, that is, how working capital affects the amount of sales revenue. The formula for calculating the working capital turnover indicator on the balance sheet is as follows:

In practice, the analysis of turnover is supplemented with the coefficient of fixation of working capital.

Working capital consolidation ratio– shows the amount of profit per unit of working capital. The calculation formula is inversely proportional to the working capital turnover ratio and has the following form:

– shows the duration (duration) of the turnover of working capital, expressed in the number of days necessary for the payback of working capital. The formula for calculating the working capital turnover period is as follows:

Analysis of working capital turnover

The higher the value of the working capital turnover ratio, the higher the quality of working capital management at the enterprise. In financial practice, there is no single generally accepted value for this indicator; the analysis must be carried out in dynamics and in comparison with similar enterprises in the industry. The table below presents different types of turnover analysis.

Video lesson: “Calculation of key turnover ratios for OJSC Gazprom”

Summary

Working capital turnover is the most important indicator of the business activity of an enterprise and its dynamics directly reflect the financial stability of the enterprise in the long term.

The working capital turnover ratio shows how many times the company used the average balance of working capital during a selected period of time. In this article we will use examples to understand how to correctly calculate and evaluate the indicator. We have also provided a procedure for analyzing turnover, which can be downloaded.

What is the working capital turnover ratio

The turnover ratio of working capital (assets) is an indicator that allows you to understand how many times the company used the average annual balance of working capital for a selected time interval.

CFOs analyze this indicator over time, in comparison with industry averages.

Calculation formula

The indicator is calculated using the following formula:

Working capital turnover ratio = Revenue (rub.) / Current assets (rub.). .

How to find a balance sheet

Calculation formula based on balance sheet data:

Ratio Analysis

The turnover ratio is analyzed:

• in dynamics,
• in comparison with industry averages, for example with the industry average turnover period.

A too low ratio, not justified by industry characteristics, indicates excessive accumulation of working capital. There are no generally accepted, let alone legally established standards, but this does not prevent them from being put into effect by internal administrative documents as target values ​​or key performance indicators.

Working capital turnover period

To analyze working capital, it is often more convenient to calculate the turnover period - the reciprocal of the turnover ratio:

Working capital turnover period (days) = Number of days / Turnover ratio

This is a more visual indicator, it is measured in days and shows us how many days the company receives revenue equal to the average amount of working capital. When turnover slows down, the turnover period increases, and when it accelerates, it shortens. If we calculate the turnover period for two different time intervals and compare them, we will be able to determine the amount of additionally necessary, or vice versa, released funds.

Special mention should be made about the time interval for calculation. Turnover ratios are calculated over a certain period of time. It doesn’t have to be a whole year, as they say in textbooks. To solve practical problems, you can calculate both for half a year and for a quarter, the main thing is that this interval is sufficiently indicative and includes all factors significant for the production process. Which interval to choose depends on the industry, type of product, duration of the production cycle and terms of mutual settlements, and so on.

Calculation example

Now let's explain all of the above with an example. Suppose our enterprise produces products for which demand has significant seasonal fluctuations. During the year, the company received revenue (see table 1).

Table 1. Annual revenue of the enterprise

The average inventory during this year is presented in Table 2.

table 2. Average inventory

Let's calculate the inventory turnover ratio for the year. To do this, divide the revenue for the year by the average annual inventory.

Turnover ratio for the year = 114,830 / 36,411 = 3.154

We find that the indicator for the year is 3.154.

Let's determine the turnover period.

Turnover period = 365 days / 3.154 = 115.7 days.

It is in 115.7 days that we receive revenue equal to the average annual inventory. What will this give us in practice? We can only compare these figures with those of the previous year or go to competitors. If they tell us that their inventories turn over at approximately the same speed, we can rest assured that our indicator corresponds to the industry average.

If we calculate the data for each quarter, we will obtain additional information (see Table 3).

Table 3. Calculation of turnover ratios for each quarter

We see that inventory turnover varies greatly throughout the year. This will become even more clear if we translate the dimensionless coefficient into the turnover period (Table 4).

Table 4. Turnaround period

It turns out that the turnover rate during the year can change by one and a half times. And this can already say a lot. For example, if a company sells goods with deferred payment, then its most acute need for working capital will be at the end of the second and third quarter. If there is no deferment for buyers, then a shortage of working capital is possible from the end of the first and throughout the second quarter.

Thus, to determine the need to attract additional working capital by the beginning of the “high” season, turnover ratios should be calculated not for the year, but for the quarter.

Then we will have a completely natural desire to speed up inventory turnover in the first half of the year. To do this, it is necessary to detail the calculations by type of goods. We download the corresponding balance sheets from the program or request from the accounting department and after some processing we receive revenue for the goods (Table 5).

Table 5. Revenue by goods ()

We average inventory and obtain the following data (Table 6).

Table 6. Average stock

We divide the revenue for goods by the average stock, we get the turnover ratio (Table 7).

Table 7. Turnover ratio

And now we discover that product “B” is an outsider, its turnover is two or more times lower than that of product “B” and product “A”. For greater convenience, let us convert the dimensionless coefficients into turnover periods (Table 8).

Table 8. Turnaround period

Now we see that turnover changes not only for different products, but also each product turns over at a different rate during the year.

Next, you need to find out what the reasons for such fluctuations in turnover are. If these reasons are objective and fully justified from a business point of view, then you should plan to raise additional funds when necessary. If the reasons are subjective, then organizational measures must be taken to eliminate them. At this stage, the financial analyst needs to demonstrate the ability to effectively interact with management and other departments, and the financial director needs to demonstrate his management talents.

conclusions

Turnover ratios in skillful hands become an effective tool for solving problems of financial stability of an enterprise (