Own working capital is the company’s resources that it invests in the current process of one production cycle. The material, labor, natural and financial assets of an enterprise serve to express certain objective and subjective relations that develop in parallel with the development of business.
Own working capital is directly involved in the emergence of new value, making functioning in the processes of circulation of the total capital of the organization. Its ratio to the value of the indicator of basic production capacities has a direct impact on the amount of income received from the sale of goods. Current and non-current assets circulate during production processes at various speeds. Material, labor and financial resources of a company have shorter completion times for a full cycle. That is why a larger percentage of the share of current assets in the total amount of capital reduces the total time required to complete technological cycles. This, in turn, contributes to the growth of new value, that is, profit.
In a market economy, the working capital of business entities is a single organic complex, which participates in the general circulation of funds. Its main component is financial resources that are invested in stocks of the enterprise and circulation funds. Their presence is a prerequisite for the functioning of the processes of production and marketing of goods.
The working capital of any enterprise makes a circuit that is continuous. Funds in the form of company resources move from the circulation sector to the manufacturing sector, and then back. Going through these three phases sequentially, current assets change their material form.
The first stage is characterized by the transfer of financial resources that are related to the sphere of circulation into stocks, that is, into the production cycle sector. The second phase of the movement of working capital is characterized by the transformation of existing resources into semi-finished products, work in progress and finished products. The third stage of the circuit relates to the sale of goods released. At this stage, working capital again takes the form of cash equivalent.
Sources of formation of enterprise assets are divided into two types: own and attracted. The first role in the company's business is played by the first type of capital. It is the organization’s own funds that ensure its financial stability, as well as the ability to conduct independent business activities. If the company went through the privatization process, then all the resources it has are at its full disposal. The company has the right to engage in their sale and transfer to other legal entities, as well as to citizens. By decision of the management, the company's own resources can be leased, etc. Attracted financial resources, which are bank loans, contribute to ensuring the additional needs of the company in funds.
Own working capital, the formula for calculating which is the difference between the amount of debt of debtors and the amount of stocks with the indicator of accounts payable (it does not include loans and short-term loans), is analyzed by comparing these values for different reporting periods. The growth of this figure indicates an increase in the creditworthiness and liquidity of the company.