It is customary to distinguish between fixed and working capital of the enterprise. Under the main are meant material factors of long-term use. We are talking about buildings, cars, equipment and more. The working capital of the enterprise is constantly changing, since it is spent on the purchase of funds necessary for a certain cycle. It can be understood as salary for employees, funds for the purchase of raw materials, and so on.
Working capital of the enterprise
Each production process is a combination of means of production with labor. As mentioned above, they represent the working capital of the enterprise. Working capital is an essential element of production. They help the company to function continuously.
Working capital - this is cash that the management advances in order to create production assets, as well as various kinds of funds circulation.
Production revolving funds are understood as means of production that take part in the production process only once, transferring their value to manufactured products, while losing their own natural-material form. We are talking about raw materials, components, work clothes and so on.
The composition of the circulation funds includes funds that somehow serve the process of product sales. They do not take any part in the production process, but are needed to ensure the unity of sales and production.
The working capital of the organization is in continuous motion, can operate in several areas simultaneously. The production cycle of the stages of the stages:
- current assets are transferred from the monetary form to the commodity form. That is, there is a purchase of objects of labor;
- entering production, circulating assets are transformed into finished products;
- finished products are sold by consumers - that is, is being marketed. Working capital at this stage again goes into cash.
Part of the money received will be reused in the future for the purchase of items that support the labor process and so on.
The continuity of the production process is achieved due to the fact that working capital is simultaneously at each of the three stages. At these stages they are not the same amount of time. It all depends on the specific situation and certain factors (sales factors and so on). Working capital delays can cause serious trouble.
The working capital of the enterprise is usually classified according to:
- The scope of turnover. It is divided into assets of circulation, as well as revolving production assets.
- Coverage by regulation. In this case, it is divided into non-standardized and standardized funds. Normalized funds set minimum sizes, and non-standardized ones are established on the basis of actual data.
- Sources of formation. This refers to the division into own and borrowed. As the name implies, owns belong to the enterprise, and borrowed ones belong to someone else. Organizations really often have to resort to all kinds of loans. The need for them arises when a shortage of own funds is discovered .
The structure of working capital is the ratio of individual elements to their combination. Her analysis can be very useful, as it is a great way to diagnose the financial condition of the company. With him, it may turn out that the finished product is poorly sold, working capital is used inefficiently. It also makes it possible to establish under what circumstances the profit would be much greater. Such an analysis should be carried out by specialists.