Its success and profitability as a whole depend on how rationally the company uses working capital. That is why it is so important to pay due attention to the economic analysis of working capital. Based on the results of these simple studies, it is possible to identify problem areas in the organization of the economic policy of a particular enterprise and discover reserves for increasing efficiency production process, prevent serious problems and losses.
And one of the most important and revealing is the turnover ratio. The advisability of its calculation and analysis at each enterprise is indicated even by the fact that the coefficient is recommended for use by the Ministry of Finance of the Russian Federation.
Turnover ratio working capital characterizes the rationality and intensity of use of these resources in the organization. It demonstrates how much revenue from product sales accounts for 1 ruble of working capital, i.e. It is this indicator that most clearly reflects the return received from working capital.
Cob = RP/CO,
where Cob is the turnover ratio, RP is the volume of products sold during the reporting period (without), CO is the average cost of working capital for the same period under review.
The working capital turnover ratio, the formula of which is given above - essential tool analysis of the efficiency of the enterprise's use of the resources at its disposal.
We are looking for indicators for calculation
So, where do you get the indicators involved in the formula? Traditionally, the source of information for economic analysis is accounting data. And for the coefficient under consideration you will need a Balance Sheet (Form No. 1) and a Profit and Loss Statement (Form No. 2). Accordingly, these documents are taken for the period being studied. Most often, indicators are calculated for 12 months, so the information is drawn from the annual financial statements.
The volume of products sold (in the formula indicated by RP) is the amount on line 10 of the Profit and Loss Statement. It is here that the net revenue from the sale of services or goods of the enterprise is displayed.
The average cost of working capital (CO) is calculated by dividing in half the sum of the cost of working capital at the beginning and end of the period under study:
CO = (CO start + CO end)/2.
The question arises again: where to get the data for the calculation? This time, the source of information will be the balance sheet - namely, the line with indicator code 290, summing up the “Current assets” section. It reflects the sum of all current assets of the enterprise - inventories, cash, receivables, short-term financial investments, etc.
What does the coefficient depend on?
Firstly, certain levels of working capital turnover ratio values are typical and traditional for enterprises in different industries. For example, the champions in terms of this indicator are trade organizations. It's all about the very specifics of their activities, which involve quick receipt of revenue. But enterprises related to the fields of science, culture, etc. will never be able to boast high values coefficient, and, accordingly, compete with the “sellers”. Therefore, when analyzing, it is inappropriate to compare organizations that differ from each other by the very nature of their activities.
What determines the value of this indicator? The following factors greatly influence its value:
- rates and volumes of production, duration of the production cycle;
- type of raw materials used;
- qualifications of members of the workforce;
- the nature of the organization's activities.
Analysis of the turnover ratio of current assets
The value of the indicator itself already speaks volumes. For example, when the turnover ratio of current assets is greater than 1, the enterprise can rightfully be considered profitable. If the coefficient exceeds 1.36, the organization is already extremely profitable - which means that the economic policy here is organized as rationally as possible.
But it is much more important to study changes in the working capital turnover ratio over time. For clarity, it is convenient to use special tables, which make it easy to trace changes and draw appropriate conclusions.
Naturally, an increase in the turnover ratio is assessed positively. The reason for progress may be the following phenomena and their combinations:
- increase in sales volumes;
- profit growth;
- increasing the efficiency of resource use;
- general increase in the level of work of the organization;
- lowering the level of working capital;
- introduction of innovations and development progressive methods and technology.
A decrease in the coefficient serves as an alarming signal about impending serious problems. This is a clearly negative point, the emergence of which can be facilitated by the following processes:
- errors and omissions in overall strategy enterprises;
- a drop in demand for goods or services produced by a particular organization;
- growth of debts;
- transition of an organization to a fundamentally different level: changing the scale or nature of production, introducing other methods and technologies, etc.
Activities such as:
- increase in the growth rate of sales volumes in comparison with the growth rate of working capital;
- reducing material and energy consumption of production processes;
- improving the quality characteristics of manufactured products;
- increasing the competitiveness of goods;
- reducing the duration of production processes;
- updates in the material supply system and in the sales area.
Possible reasons for the decrease in the working capital turnover ratio
In any case, if there is an alarming trend of decreasing ratio values over time, management should think about how to increase the efficiency of using working capital. For example, often the reason for low turnover ratios is the accumulation of material assets in an enterprise in excess of norms. In this case, it is necessary to reduce their volumes by directing these funds to production. In addition, it is worth paying attention to the introduction of new progressive equipment and technologies, considering the possibility of bringing manufacturers of finished products as close as possible to their direct consumers, intensifying the acceleration of document flow and improving the settlement and payment system of the enterprise, etc.
The success of any enterprise directly depends on how rationally working capital is spent. It is very important to pay close attention to 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 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 the annual accounting report.
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 net revenue from total sales for a certain period.
It is important to subtract the average cost of all assets. 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 in order to make the calculation is taken from the balance sheet, exactly from line 290. It is there 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 industries, such as cultural or scientific organizations, do not 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 work of an enterprise without correct application 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 line of the report 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 have begun 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 mistakes 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;
Most large coefficient 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 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 various 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. His 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.
Analysis of the coefficient 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.
In conditions market economy The stability of the company's position is largely due to its activity in work, which depends on the efficient use of resources, the breadth of markets, and economic sustainability.
In the financial aspect, the company’s activity is manifested by the rate of turnover of its funds, which can be analyzed by the working capital turnover ratio and other indicators.
The importance of indicators characterizing the turnover of funds is explained by the fact that they show the profitability of the company.
The coefficient (resource productivity) allows you to see the turnover rate of the entire capital of the company in the aggregate. It shows how many times the full cycle of circulation and production is carried out during the period under review or how many monetary units each unit gave.
The turnover ratio is calculated by dividing the net proceeds received from sales by the annual average. This indicator allows you to assess the efficiency of using assets, regardless of the sources of their formation. Determining the resource efficiency indicator shows the amount of profit received from each ruble invested in assets.
Depends on the turnover rate financial condition firm, its liquidity and solvency. The most important indicators resource productivity is determined by the period and turnover rate. The latter shows how many capital turnover occurred over a certain period of time. Average term, during which the return on investment in commercial operations will occur or is called the turnover period.
Low turnover (of goods, for example) indicates the low efficiency of the company's assets.
Working capital turnover ratio
A characteristic of the speed of turnover from the moment of payment until the return of money for sold material assets to the bank account is the turnover of funds (current). Their amount is calculated based on their total size, subtracting the balance of monetary assets in the current account.
The working capital turnover ratio is also calculated by the ratio of (revenue) from the sale of goods to the amount of the company's working capital. The calculation does not take into account VAT and excise duty. If this indicator decreases, we can say that turnover is slowing down.
If turnover accelerates with a constant sales volume, then the company will have to use less working capital. With an increase in turnover, the company spends less reverse funds, which allows it to use material and monetary resources more efficiently. Working capital released from production can be used in other industries. Thus, the working capital turnover ratio shows the entire set of processes in the company’s activities: a decrease in capital intensity, an increase in the rate of productivity growth.
The main factors influencing the turnover of current assets are a reduction in the duration of the general technological cycle, improvement in sales and supply conditions, improvement in the organization of production and technology, and clear organization of settlement payment relations.
Accounts receivable turnover ratio
In the process of operation, enterprises have to provide commodity loans to consumers, as a result of which receivables accumulate. Its turnover rate determines the number of turnovers per year of funds invested in the calculations.
Activity financial activities commercial organizations is based on the analysis of a number of indicators, which include asset turnover, the calculation of which allows us to determine how effectively the organization uses its assets or liabilities.
Asset turnover
COds = V / DS, where
KODS – cash turnover ratio,
B – revenue,
DS - the amount in the accounts and cash register of the enterprise.
If the ratio tends to decrease, this means that the operation of the enterprise is organized inefficiently, and highly liquid assets are used at a slower pace.
Turnover of tangible current assets (inventories)
The correct organization of the production process also requires the effective use of reserves, the calculation of which is carried out in the following order:
KOzap = B / ZAP, where
KOzap – inventory turnover ratio,
B – revenue,
ZAP – book value of inventories.
An increase in the indicator indicates that the demand for products sold is at a good level and the goods are not sitting in warehouses. A decrease in the indicator indicates that the company’s marketing policy is poorly organized and requires careful analysis.
The analysis of these indicators should be carried out not by comparison with established standards, but by considering their dynamics over the past years and making a comparison with the activities of competitors. So, if the indicator does not reach the norm, but at the same time, against the background of other reporting periods, it has higher value, this indicates proper organization activity of the enterprise and a gradual increase in asset turnover.
Analysis of profitability of organizations
Financial and economic activities of any legal entity, regardless of the form of ownership, is assessed through an analysis of absolute and relative indicators of its activities. The indicators of the first group do not carry an economic burden and are purely arithmetic in nature.
Relative indicators characterize how well the financial and economic activities of an enterprise are organized and show the dynamics of its development. One such indicator is return on assets, which is calculated by multiplying the asset turnover ratio by the return on products sold.
It is the ratio of net profit to revenue, and net profit in turn is the difference between revenue received and cost of goods sold.
Thus, the higher the capital productivity ratio, the greater the organization’s profit in the reporting period.
We analyze the results obtained
Ra = PE / SAsr, where
Ra – return on assets,
PE – net profit,
CAср – average asset value.
The return on current assets is calculated in the same way.
In order to do full analysis activity of the enterprise, all groups of factors must be taken into account: capital productivity, profitability of sales, intensity of OS operation, efficiency of financial management. Constant monitoring of the enterprise’s activities will allow us to develop the right development strategy aimed at ensuring financial stability. Completeness of analysis entrepreneurial activity also depends on the correctness of the data provided in the reporting documentation.
Write your question in the form below
The management of any enterprise, as well as its investors and creditors, are interested in the company’s performance indicators. To conduct a comprehensive analysis, various techniques are used.
It is mandatory to study indicators of profitability and business activity. If the first group considers net profit in the analysis process, then the second group considers sales revenue. The research is carried out using a system of indicators. One of the first to be studied is the turnover ratio, the formula of which takes into account all the company’s assets. Next they examine it structural components. Liability indicators also participate in the analysis. This allows you to understand how quickly the company turns available resources into money and pays off debt obligations.
The concept of the turnover cycle
The capital turnover ratio of an enterprise allows you to assess the speed at which the enterprise’s capital goes through its full cycle. A company that owns resources uses them to manufacture products, sell them and make a profit.
The period during which the organization’s funds go through all stages is called the turnover cycle. First, resources are converted into finished products. Then it is sent for sale. Customers purchase goods or services and the money is returned back to the organization.
The faster the full cycle occurs, the more revenue the company receives from sales. Therefore, she is interested in accelerating turnover. Analysis of business activity allows us to identify limiting factors. The asset turnover ratio, the formula of which considers its structural elements, makes it possible to harmoniously distribute and use property.
Turnaround period
The turnover ratio, the formula of which shows a numerical result, is not always absolutely informative. Its dynamic growth indicates a positive trend for the organization. But this indicator does not reveal information about the duration of the cycle.
Therefore, such coefficients are presented in days. The analyst can then determine exactly how long the period lasts. This allows you to find optimal value coefficient The researcher evaluates the turnover cycle of permanent and current assets, accounts payable. But it is movable property that deserves the closest attention and This analysis reflects the system of interaction between the company and suppliers, its sales and material support for current activities.
Cost cycle
It is current assets that are of great interest to analysts in the presented analysis. Therefore, the assessment uses the working capital turnover ratio, the formula of which is discussed below.
In order to have information about the factors influencing this indicator, the financial manager must consider the cycle duration of the components of current assets. Their duration (except for monetary funds) is summed up.
This is how the cost cycle indicator is obtained. The longer it is, the more financial sources the company puts into circulation. They accumulate in it.
The faster the cost cycle occurs, the more funds released from circulation. They can be used more constructively.
General formula
The calculation of the ratio or assets has a general form. This is explained by the identical indicator with which this or that item of property or capital is compared. The formula looks like this:
Cob = Calculation Base/Asset (or Liability).
The turnover ratio, the formula of which is used by the financial services of enterprises, assumes taking into account the average annual value of the indicator. Only the article being evaluated changes. The numerator of the formula is also selected depending on the coefficient being studied.
When considering accounts receivable and advance payments to customers, their average annual value is compared with revenue from sales of products. If the rate of turnover of debt on loans and advances to suppliers is calculated, the calculation base is the cost price. She also participates in the consideration of indicators of turnover of finished products and work in progress.
The inventory turnover ratio, the formula of which corresponds to the above method, takes material costs as its base.
Financial statements
To determine business activity indicators, financial reporting data is used. The denominator is found according to Form No. 1 “Balance Sheet”, and the numerator is found according to Form No. 2 “Profit and Loss Statement”. The asset turnover ratio, the formula of which was discussed above, according to the reporting, has the following form:
Kob = s. 2110 (form 2)/s. 1600 avg. (Form 1).
To determine the turnover ratio of current assets, the data from line 1200 of the balance sheet is taken as the denominator. The indicator determining the turnover of permanent assets in the previous formula applies the data reflected in article 1150 of the balance sheet.
IN general view The calculation of the turnover of current liabilities looks like this:
Kotp = s. 2110 (form 2)/s. 1300 avg. (Form 1).
If investors need to estimate the speed of movement, the presented method uses the sum c. 1500 and c. 1400. To calculate the turnover of debtors' debt, data from p. 1230, and reserves - the amount of c. 1210 and p. 1220.
Reserves
When assessing inventory movements, it is more advisable to use a methodology that shows the result in days. This is one of the most important characteristics that a financial service determines. There must be enough reserves so that the production cycle runs smoothly and without interruptions. But materials should not be accumulated or “frozen” in the company’s current assets.
The inventory turnover ratio, the formula of which was discussed earlier, allows you to determine the period in days:
Tz = Material costs/Inventories (average)*360.
If the reporting period takes a different number of days, its duration is taken into account. In general, the amount of sales revenue is used for calculation in the numerator. But when it comes to inventories, their movement is determined by the amount of material costs.
To optimize the indicator and speed up the cycle, it is necessary to reduce the amount of “dead” inventory that is not purchased with each new operating period.
Accounts receivable, finished goods
Turnover ratio, the calculation formula for which examines current assets such as accounts receivable and finished products, is also of interest to analysts. If a significant amount of funds accumulates in these balance sheet items, this negatively affects the company's performance. If, after the analysis, the turnover period of debtors' debt is determined to be too long, it is necessary to change the system of settlements with customers.
Perhaps you should switch to an advance, non-cash payment type. The amount of bad debt is also determined.
If an enterprise accumulates a significant amount of finished goods and work in progress, the sales system is revised and equipment is modernized.
Current assets
The duration of the turnover periods of balance sheet items is added up. This allows you to evaluate the efficiency of operating the company's property. In general, the company’s mobile resources allow us to study the working capital turnover ratio (the formula was presented earlier).
An increase in the duration of the cost cycle negatively affects a number of other indicators. It increases as its absolute value decreases. Return on equity also decreases. In this case, a whole system of measures is developed to optimize the structure of the company’s property.
Accounts payable
Analysts look at more than just the speed of an organization's asset cycle. They also examine the capital turnover ratio (the formula was discussed earlier). This technique shows how many times during the operating period the company pays off its obligations with creditors.
Therefore, for the calculation, it is the current debt that is taken into account. Often, an enterprise that has a large amount of receivables also has a significant number of current liabilities. This is a negative trend. Such an organization is limited in its ability to attract borrowed capital, purchase materials and resources for production on credit. By optimizing the asset structure, it is possible to improve liability indicators.
Economic effect
A special place in financial and economic analysis is occupied by turnover ratios. Balance formulas allow you to find factors limiting development. Qualitative assessment business activity makes it possible to determine how effectively a company conducts its business activities.
All indicators obtained during the analysis are considered in dynamics and compared with similar ratios of competing companies. If the turnover ratio, the formula of which allows you to evaluate the structure of the balance sheet, decreases, the cycle period accelerates. At the same time, the organization expands its sales markets, it has regular suppliers and buyers. This is a competent commercial policy of the enterprise.
The acceleration of the turnover period indicates a simultaneous increase in return on capital. The company uses its assets efficiently. Therefore, the presented system of indicators must be analyzed by the financial service of the organization.
