Working capital represents a part of the capital of the organization, which is invested in current assets. The composition of this part (on material and technical grounds) includes objects of labor (fuel, raw materials, materials, etc.), finished products in the warehouses of the company, funds in the calculations, as well as products for resale and cash. Real components (objects of labor) of circulating assets are used in each production cycle. At the same time, objects of labor lose their natural form completely. These current assets are fully included in the value of the goods produced.
Using part of the capital invested in assets, the continuity of the production process is ensured.
The working capital circuit is characterized by high speed and consists of several stages.
At the procurement stage, capital from the monetary form takes the production form (becomes objects of labor, for example).
At the production stage, resources are converted into services, work or products. As a result, current assets take commodity form.
Next is the sale of products. Thus, current assets from the commodity form again turn into cash.
Elements of active capital are part of a continuous flow of business operations. Due to the purchase, inventories and accounts payable increase. The production process leads to an increase in the volume of finished products. Due to the implementation of increased receivables and the amount of funds in the account and at the cash desk of the enterprise. The specified cycle, repeating many times, ultimately leads to cash payments and receipts.
The placement of the active part of capital in the production process leads to the division into circulation funds and production assets.
The latter function during production, and the latter in the process of circulation, that is, in the sale of finished products and the acquisition of inventory.
To ensure the optimal ratio, it is necessary that the production assets account for a large share. The volume of means of circulation should be optimal, but no more, to ensure a rhythmic and clear process of circulation.
Revolving production funds consider stocks (containers, materials, spare parts, raw materials, etc.), expenses of the coming periods, work in progress.
Means of circulation include goods shipped, cash, finished goods, receivables, etc.
In accordance with the principles of management and organization of working capital, as well as in connection with the need to optimize the volume of stocks, there is a division into working capital non-standardized and standardized.
The first are elements of circulation funds. Their management is carried out in order to prevent their excessive increase.
Normalized working capital is communicated with its own active funds.
Management of the active part of capital as a whole has a close relationship with its placement. Different business entities are characterized by a different composition and structure of working capital. They depend on the specifics of the organization of the production process, ownership, characteristics of production costs. Of no less importance are relations with consumers and suppliers, and financial condition.
The division of working capital into borrowed and own funds indicates the sources and forms of the provision of these funds to the organization for temporary or permanent use.
The formation of own assets is carried out using equity (reserve, authorized and other). Borrowed funds are formed in the form of bank loans, debt.
In addition, funds from additional sources may be raised.