To characterize the turnover of working capital, the following indicators are used:
- turnover ratio (K o), that is, the number of revolutions made by working capital during the period;
- utilization rate of funds in circulation (Кз);
- indicator of the duration of one revolution in days (T).
Turnover ratio calculated by the formula
where P is the volume of sales (by main types of activities) for the period at cost, rub.;
C – the average value of working capital for the period, which can be defined as the chronological average, rub.
Load factor of funds in circulation is defined as the inverse indicator:
Duration of one revolution (turnover period) in days is determined by the ratio of the number of days of the reporting period (D) to the turnover ratio:
Based on the above formulas for turnover of funds speed(K o) can be defined by two formulas:
Based on these two equations, we can obtain the equality
R/S = D/T
From this we derive a formula widely used in practice for determining the duration of turnover in days: .
Let's consider example. Cost price products sold per year is 20 million rubles. The average value of working capital for the year is 2 million rubles. In this case, the turnover ratio
T = (S∙D) / Ko
and the turnover period
T = D / Co = 365 / 100 = 36.5 days.
It follows that with the duration of one turnover being 36.5 days, working capital was turned over 10 times during the year. For every ruble of working capital there were 10 rubles. sold products. Obviously, the higher the turnover ratio, the better the use of working capital.
Working capital turnover indicators can be calculated similarly for all components of working capital involved in turnover and their individual elements. As a result of comparison of working capital turnover indicators, its acceleration or deceleration at the stages of their use is revealed. When the turnover of working capital accelerates, material resources and sources of their formation are released from circulation; when it slows down, additional funds are drawn into circulation.
The release of working capital due to the acceleration of their turnover can be absolute and relative. An absolute release occurs if the actual balances of working capital are less than the standard or balances of the previous period while maintaining or exceeding the sales volume for the period under review. Relative release working capital occurs in cases where the acceleration of their turnover occurs simultaneously with an increase in production volume, and the growth rate of production volume is faster than the growth rate of working capital balances.
The main ways to reduce production inventories come down to their rational use, elimination of excess stocks of materials, improvement of rationing, improvement of supply organization, optimal choice suppliers, well-established transport. An important role belongs to improving the organization of warehouse management.
Reducing the time spent by working capital in work in progress is achieved by improving the organization of production, improving the equipment and technology used, improving the use of fixed assets, and saving at all stages of the movement of working capital.
In the sphere of circulation, working capital does not participate in the creation of a new product, but only ensures its delivery to the consumer. The most important prerequisites for reducing investments of working capital in the sphere of circulation is rational organization sales finished products, the use of progressive payment methods, timely execution of documentation and acceleration of its movement, compliance with contractual and payment discipline.
The structure of working capital at enterprises in different industries is determined by the specifics of their production and the nature of the products produced. For example, in ferrous metallurgy, the size and structure of working capital are determined by the continuous production process and the significant material intensity of products.
Along with the division of working capital by stages of circulation into working capital (functioning in the sphere of production) and circulating funds (functioning in the sphere of circulation), there is a second division into standardized and non-standardized working capital. Standardized working capital consists of working capital and finished products in the warehouse, ensuring the continuity of the production process. In the total amount of working capital of ferrous metallurgy enterprises, the predominant part (up to 90%) is made up of standardized working capital. The division of working capital into standardized and non-standardized is not rigid. The organization has the right to independently determine the list of working capital included in a particular group.
In the article we will talk about working capital load factor, and also consider the formula for calculating the indicator for the business plan. This coefficient is inverse and represents the ratio of the average cost of working capital for the period to revenue from product sales. It shows the amount of working capital spent per 1 ruble of products sold. The formula for calculating the working capital load factor is discussed below.
K rev – turnover ratio.
The period for which the cost of working capital is averaged can be equal to: 30 days, 180 days, 360 days.
The working capital utilization ratio characterizes the efficiency of using working capital. The lower the load factor, the more efficiently the business operates and the more efficient use of working capital.
Summary
The main task in managing the assets of an enterprise is to maximize the profit on invested money while ensuring the liquidity and solvency of the company. In order to ensure sufficient solvency, the company must have a certain amount in its account Money, which does not participate in production turnover. One of the important tasks in managing working capital of an enterprise is to ensure an optimal balance between the solvency of the enterprise through maintaining appropriate amounts of working capital (see “
The director of a company, who only has indicators of profit and overall profitability before his eyes, cannot always understand how to adjust them in the right direction. In order to have all the control levers in your hands, it is absolutely necessary to calculate the turnover of working capital.
The picture of the use of working capital consists of four main indicators:
- Duration of turnover (determined in days);
- How many times do working capital turn over in the reporting period;
- How much working capital is there per unit of products sold;
- Load factor of funds in circulation.
Let's consider the calculation of this data using the example of an ordinary enterprise, as well as the calculation of a number of important coefficients for understanding the significance of turnover indicators in the overall picture of the company's success.
Turnover ratio
The main formula determining the rate of turnover of working capital is as follows:
Cob is the turnover ratio. It shows how many turnovers of working capital were made during a specific period of time. Other designations in this formula: Vp - volume of product sales for the reporting period;
Osr is the average balance of working capital for the reporting period.
Most often, the indicator is calculated for the year, but absolutely any period needed for analysis can be selected. This coefficient is the rate of turnover of working capital. For example, annual turnover mini store mobile phones amounted to 4,800,000 rubles. The average balance in circulation was RUB 357,600. We get the turnover ratio:
4800000 / 357600 = 13.4 revolutions.
Duration of turnover
It also matters how many days one revolution lasts. This is one of the most important indicators, which shows how many days later the company will see the funds invested in turnover in the form of cash proceeds and will be able to use them. Based on this, you can plan both making payments and expanding your turnover. The duration is calculated as follows:
T is the number of days in the analyzed period.
Let's calculate this indicator for the above digital example. Since the company is a trading company, it has a minimum number of days off - 5 days a year; for the calculation we use the figure of 360 working days.
Let's calculate how many days later the company could see the money invested in turnover in the form of revenue:
357,600 x 360 / 4,800,000 = 27 days.
As you can see, the turnover of funds is short; the management of the enterprise can plan payments and use of funds to expand trade almost monthly.
To calculate the turnover of working capital, the profitability indicator is also important. To calculate it, you need to calculate the ratio of profit to the average annual balance of working capital.
The enterprise's profit for the analyzed year amounted to 1,640,000 rubles, the average annual balance was 34,080,000 rubles. Accordingly, the profitability of working capital in in this example is only 5%.
Load factor of funds in circulation
And one more indicator necessary to assess the speed of turnover of working capital is the load factor of funds in circulation. The coefficient shows how much working capital is advanced per 1 ruble. revenue. This is the working capital intensity, which shows how much working capital must be spent for the company to receive 1 ruble of revenue. It is calculated like this:
Where Kz is the load factor of funds in circulation, kopecks;
100 - conversion of rubles to kopecks.
This is the opposite of the turnover ratio. The smaller it is, the better the use of working capital. In our case, this coefficient is equal to:
(357,600 / 4,800,000) x 100 = 7.45 kopecks.
This indicator is an important confirmation that working capital is used very rationally. The calculation of all these indicators is mandatory for an enterprise that seeks to influence operational efficiency using all possible economic levers.
In Forecast NOW! can be calculated
- Turnover in monetary and natural units both for a specific product and for a group of products, and by section - for example, by suppliers
- Dynamics of changes in turnover in any necessary sections
An example of calculating the turnover rate by product groups:
Assessing the dynamics of changes in turnover by product/group of products is also very important. In this case, it is important to correlate the turnover schedule with the service level schedule (how much we satisfied consumer demand in the previous period).
For example, if turnover and the level of service are declining, then this is an unhealthy situation - you need to study this group of products more carefully.
If turnover increases, but the level of service decreases, then the increase in turnover is most likely due to smaller purchases and an increase in shortages. The opposite situation is also possible - turnover decreases, but in this calculation the level of service - customer demand is ensured by large purchases of goods.
In these two situations, it is necessary to evaluate the dynamics of profit and profitability - if these indicators grow, then the changes taking place are beneficial for the company; if they fall, it is necessary to take action.
In Forecast NOW! It’s easy to assess the dynamics of turnover, service level, profit and profitability - just carry out the necessary analysis.
Example:
Since August, there has been an increase in turnover with a decrease in the level of service - it is necessary to evaluate the dynamics of profitability and profit:
Profitability and profit have been falling since August, we can conclude that the dynamics of changes are negative
The effectiveness of the functioning of a business entity is assessed during the financial analysis. One of its indicators is the turnover ratio. This parameter allows you to understand how effectively management manages the company’s assets, which is possible based on the criteria for assessing the frequency and intensity of their use. What is the working capital load factor, what does it characterize, how is it calculated and used in the analysis?
What is working capital utilization factor
general information
The working capital utilization ratio includes indicators such as the cost of products that were sold and the value of working capital determined for the time period that is the base for settlement operations.
It is the inverse of the turnover ratio. Since it identifies the amount of working capital that was spent on the production and sale of products in the equivalent of one ruble, it is used in conjunction with the turnover ratio to evaluate the parameter.
The main difference between the coefficient and the profitability parameter is that in the calculations it is not used as net profit, but as total revenue from the sale of the results of labor of business entities. Therefore, we can judge that the parameter identifies the degree business activity
, while profitability determines the level of profitability.
The higher the turnover ratio, the better the company's solvency, and the more financially stable it is. It can be used to judge how much trade turnover must be generated in order to recoup all investments in the business.
Kinds Based on the turnover rate applied to working capital, the intensity of their use becomes clear.
- It is influenced by interrelated economic parameters:
- turnover ratio;
- the duration of one cycle, displayed in days.
By the turnover ratio, one can judge how many times the working capital of a business entity can turn over during the reporting period. It is defined as the quotient of the total amount for which products were sold or services were provided and the cost of the enterprise's working capital. All figures are taken into account for the same period. It is believed that the higher the value of the parameter, the more effective the activity of the subject, which is explained by the optimal use of all means in the production process.
Read also: Economic profitability: formula
The duration of one revolution does not depend on the period for which the calculation is made. For example, one turnover per quarter corresponds to four turnovers per year. In this case, the duration of one cycle remains unchanged. The value can be calculated as a quotient of the total cycle duration and the turnover ratio. The cycle can last for any reporting period. A decrease in the duration of turnover indicates an improvement in the use of enterprise resources.
The working capital utilization factor formula determines the inverse parameter of turnover. It can be used to judge the balance of working capital that falls on each ruble of products sold. The lower the value of the indicator, the more efficient the use of company funds.
Calculation formula
The process of acceleration and deceleration of turnover is identified by comparing planned and actual values. It is permissible to compare current data with the values of the previous period. As the process accelerates, material resources and their sources of origin are released from the cycle. If it slows down, it is necessary to involve additional funds to reach the required level.
Apply to different objects
Turnover can be applied to assets, which dictates the rules for its assessment over time.
An increase in the parameter is caused by an increase in revenue received through the use of assets. It is defined as the ratio of private earnings for a certain period to the value of assets.
The indicator can be applied to current assets, the category of which includes funds that are quickly converted into cash. There is no standard value for this value. Its assessment is also carried out over time.
If applied to cash, it will identify how actively management manages it, as well as show the number of its turnover over a given time period. To calculate it, you must determine the revenue received from sales of manufactured products and divide it by the amount of cash. The parameter is assessed based on the trend of change.
Trade organizations must use working capital expediently and efficiently. This presupposes, firstly, the safety of its own working capital and the inadmissibility of reducing the amount available to the enterprise. A necessary condition The safety of own working capital is the profitable operation of the enterprise. Secondly, working capital (own and borrowed) must be used for specific purposes and in the amount prescribed financial plan. Thirdly, working capital should be used efficiently, i.e. plans must be carried out with a minimum amount of working capital.
The effective use of working capital means their functioning in such a way that a stable state of finances is ensured, financial budget discipline is strictly observed, and the highest results are achieved at the lowest cost.
The level of efficiency in using the total amount of working capital and its individual types is characterized by a system of cost and natural, quantitative and qualitative indicators.
The main indicators characterizing the efficiency of using working capital are the working capital turnover ratio. It characterizes the amount of revenue from sales per one ruble of working capital. It is calculated as the ratio of the amount of revenue from product sales to the average balance of working capital:
K rev = BP / O avg,
where VR is sales revenue, rub.;
About avg - average balance of working capital, rub.
The working capital turnover ratio is the capital productivity of working capital. Its growth indicates a more efficient use of working capital.
Working capital turnover is the duration of one full turn funds, from the first to the third phase
The duration of one turnover of working capital is calculated by the formula:
D ob = D p / K ob,
where D p is the duration of the period for which the degree of use of the OS is determined.
In calculations, the length of a year is 360, a quarter is 90, and a month is 30 days.
The average balance of an enterprise's working capital is calculated using the formula:
O av = (On/2 + O1+ O2+ O3 +Ok/2) / (n-1),
where О i is the balance of working capital as of the first day of the corresponding month, rub.;
n is the number of months in the analyzed period.
Also, to assess the efficiency of using working capital, the working capital load factor is calculated; it characterizes the amount of working capital advanced per ruble of revenue from product sales. In other words, it represents the working capital intensity, i.e. costs of working capital to receive one ruble of sold products (works, services). The utilization rate of funds in circulation is the ratio of the average balance of working capital to the amount of revenue from product sales:
K z = O av / BP
Another main indicator characterizing the efficiency of use is the profitability of working capital.
Profitability is called (profitable, useful, profitable), a relative indicator economic efficiency. Profitability comprehensively reflects the degree of efficiency in the use of material, labor and monetary resources, as well as natural resources. The profitability ratio is calculated as the ratio of profit to the assets, resources or flows that form it. It can be expressed both in profit per unit of invested funds, and in the profit carried by each monetary unit received. Profitability ratios are often expressed as percentages.
R ob = emergency / O avg,
where PE is net profit.
And the final factor is liquidity - it means the ability of an enterprise to repay its obligations with assets, the period of conversion of which into money corresponds to the period of repayment of obligations. The level of liquidity of an enterprise is determined by liquidity ratios, the calculation of which is based on a comparison of current assets and short-term liabilities. The greater the excess of current assets over short-term liabilities, the more favorable financial condition enterprises. Depending on what part of current assets relates to short-term liabilities, the following indicators are calculated to assess liquidity:
Current ratio or coverage ratio is a financial ratio equal to the ratio of current current assets taken into account when assessing the balance sheet structure is the total of the second section of the balance sheet of Form No. 1 (line 290) minus line 230 (accounts receivable, payments for which are expected more than 12 months after the reporting date) to short-term liabilities - this is the total of the fourth section balance sheet (line 690) minus lines 640 (deferred income) and 650 (reserves for future expenses and payments). The data source is balance sheet companies.
The coefficient is calculated using the formula:
K tl = current assets / short-term liabilities.
The ratio reflects the company's ability to pay off current (short-term) obligations using only current assets. The higher the indicator, the better the solvency of the enterprise. Liquidity ratios characterize the solvency of an enterprise not only this moment, but also in case of emergency.
A normal coefficient is considered to be between 1.5 and 2.5, depending on the industry. Both low and high ratios are unfavorable. A value below 1 indicates high financial risk due to the fact that the company is not able to consistently pay current bills. A value greater than 3 may indicate an irrational capital structure. But it is necessary to take into account that depending on the area of activity, the structure and quality of assets, etc., the value of the coefficient can vary greatly.
It should be noted that this coefficient does not always give a complete picture. Typically, enterprises that have small inventories and are easy to obtain money from bills of exchange can easily operate with a lower ratio than companies with large inventories and sales of goods on credit.
Another way to check the adequacy of current assets is to calculate quick liquidity. Banks, suppliers, and shareholders are interested in this indicator, since the company may encounter circumstances in which it will immediately have to pay some unforeseen expenses. This means that she will need all her cash, securities, accounts receivable and other means of payment, that is, the part of her assets that can be converted into cash.
The quick (quick) liquidity ratio characterizes the company's ability to repay current (short-term) obligations using current assets. It is similar to the current liquidity ratio, but differs from it in that only highly and moderately liquid assets are included in the working capital used for its calculation. current assets(money in operational accounts, warehouse stock of liquid materials and raw materials, goods and finished products, accounts receivable from short term repayment).
Such assets do not include work in progress, as well as inventories of special components, materials and semi-finished products. The source of data is the company’s balance sheet in the same way as for current liquidity, but inventories are not taken into account as assets, since if they are forced to be sold, losses will be maximum among all current assets:
To bl = accounts receivable + cash + short-term financial investments/ Short-term liabilities.
This is one of the important financial ratios, which shows what part of the company's short-term liabilities can be immediately repaid using funds in various accounts, short-term securities, as well as income from settlements with debtors. The higher the indicator, the better the solvency of the enterprise. A ratio value of more than 0.8 is considered normal (some analysts consider the optimal ratio value to be 0.6-1.0), which means that cash and future income from current activities must cover the organization’s current debts.
To increase the level of urgent liquidity, organizations should take measures aimed at increasing their own working capital and attracting long-term loans and borrowings. On the other hand, a value of more than 3 may indicate an irrational capital structure; this may be due to the slow turnover of funds invested in inventories and the growth of accounts receivable.
In this regard, the litmus test for current solvency can be the absolute liquidity ratio, which should be more than 0.2. The absolute liquidity ratio shows what part of the short-term debt the organization can repay in the near future at the expense of the most liquid assets(cash and short-term securities).
Absolute liquidity ratio. Financial ratio equal to the ratio of cash and short-term financial investments to short-term liabilities (current liabilities). The source of data is the company’s balance sheet in the same way as for current liquidity, but only cash and cash equivalents are taken into account as assets, the calculation formula is:
Cal = cash + short-term financial investments / short-term liabilities.
A coefficient value of more than 0.2 is considered normal. The higher the indicator, the better the solvency of the enterprise. On the other hand, a high indicator may indicate an irrational capital structure, an excessively high share of non-performing assets in the form of cash and funds in accounts.
In other words, if the cash balance is maintained at the reporting date level (mainly by ensuring a uniform receipt of payments from counterparties), short-term debt as of the reporting date can be repaid in five days. The above regulatory limitation applies to foreign practice financial analysis. At the same time, an exact justification why to maintain a normal level of liquidity Russian organizations The amount of cash must cover 20% of current liabilities, but it is not available.
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