Fixed and working capital is of lasting importance for calculating 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 - these are the components of the capital of the enterprise, which is the financial, material and intellectual values that are the property of the company and serve in the process to generate 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 initial capital, which is put into circulation at the very beginning of the business project. The successful launch of an entrepreneurial idea and the maintenance of a competitive position in the market by a new business depends on its correct miscalculation and planning of all financial operations at the initial stage. Therefore, a novice businessman, during the planning process of the implementation of his undertaking, should carefully estimate the permissible minimum and maximum financial resources available, and necessary to achieve the goal. The determination of the mandatory amount of initial capital is made depending on the industrial sector in which the implementation of the idea of business is supposed.
When calculating the necessary initial capital, distribution of such into working capital and fixed capital is of great importance. During planning, it is also very important to determine the capital structure, which is an indispensable element in calculating the initial capital.
What does the division into fixed and working capital mean?
Main capital
It includes buildings, land, transport, equipment, tools, machines, innovative property, patents, licenses.
That is, it is a movable and immovable property of a company having a specific value determined using depreciation methods of accounting for a given time period. Fixed assets for several years take part in the production process and transfer their value to finished products or goods in stages, over several years.
Working capital
The concept of 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 (payroll, cash on hand, the amount of cash to purchase raw materials, materials or goods);
- materiel (short-term tools, manufacturing materials, raw materials, products or purchased goods for sale).
The ratio of working capital
When determining the structure and ratio of parts of working capital 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 for the purchase of a building for office and production halls or retail space and equipment. If you do not take into account the money spent on the amount of money left for working capital, that is, raw materials, goods for sale, money for their purchase, funds for salaries to employees, then at the very beginning the company can simply “suffocate”, that is, stop the activity. Therefore, the larger the scale of operation of the enterprise is planned, the greater the need for an increased volume 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 complexity of the products.