The most important indicators for assessing the effectiveness of the use of working capital of the enterprise are the turnover ratio of working capital and the duration of one turnover.
The turnover rate of working capital, which characterizes the speed of their turnover for the period under review, is determined by the formula:
Cob = Qp / Fos,
where: Qp – the volume of products sold for the period under review in wholesale prices, rubles;
Fos – the average balance of all working capital for the period under review, rubles.
The turnover ratio shows the number of turnovers made by working capital per year.
The average working capital balance is determined by the chronological average formula.
The duration of one turnover in days, showing for how long its working capital is returned to the enterprise in the form of proceeds from the sale of products, is determined by the formula:
Tob = Dk / Cob or Tob = Foz * Dk / Qr.
The coefficient of fixation of working capital in circulation shows the amount of working capital per one ruble of products sold:
Kzos = Fos / Qr.
Turnover indicators are determined by the volume of products sold, because it is the sales that complete the circulation of working capital.
Acceleration of turnover of working capital leads to the release of working capital of the enterprise from circulation. On the contrary, the slowdown in turnover leads to an increase in the need of the enterprise for working capital.
The most important prerequisite for accelerating the turnover of working capital is the implementation of measures to improve the use of working capital at all stages of their circulation.
The relative release (involvement) of circulating assets occurs in the case of acceleration (deceleration) of turnover and can be determined by the formula:
F vys. = Qp * (Tob1 – Tob2) / Dk,
where: Qp – the volume of sales of products in the compared period in wholesale prices, rubles;
Tob1, Tob2 – the duration of one revolution in days in the base and compared periods, days.
Acceleration of turnover of working capital can be achieved through the use of the following factors:
optimization of production stocks; outstripping the growth rate of sales volumes in comparison with the growth rate of working capital; increase in the volume of production and sales of products with a constant level of working capital; improvement of the supply and marketing system; reduction of material intensity and energy intensity of products; improving product quality and competitiveness; reduction of the duration of the production cycle, etc.
The effectiveness of managing the working capital of the enterprise has a great impact on the results of its financial and economic activities.
On the one hand, it is necessary to use the available working capital more rationally (optimization of production stocks, reduction of work-in-progress, improvement of calculation forms).
On the other hand, enterprises currently have the opportunity to choose different options for writing off costs at cost.
For example, depending on the demand environment and sales forecasting, businesses may be interested in writing off costs intensively or distributing them more evenly over a period. To do this, it is important to choose from a list of options that will meet the goals. It is necessary to trace what impact the decisions made will have on the cost price, the size of profits and taxes. A significant part of these alternative opportunities relates to the management of working capital of the enterprise.
Inventories are recorded according to the rule of the lowest of two estimates – at cost and at market price.
In foreign practice, the following methods of reserve assessment are used:
The method of estimation based on the determination of the cost of each unit of purchased stocks is to take into account their movement at the actual cost price; Method of estimating inventories at average cost; Method of estimating inventories at the cost of the first FIFO purchases; Method of estimating inventories at the cost of the latest LIFO purchases.
Despite the fact that the LIFO method provides a reduction in tax payments, many firms refuse to use it, since the low financial result of the enterprise has a negative impact on the company’s position in the financial market, since one of the main indicators affecting the quotation of the company’s securities is the net profit per 1 share in circulation.