Working capital management is a fairly relevant issue of our time. This term refers to that part of the enterprise’s funds that is invested in inventory and assets of the enterprise with a circulation period of not more than a year. These costs are fully refunded to the investor, as they are included in the cost of production.
Management of the working capital of the organization is based on two components, such as circulation funds and working capital. The former form the enterprise resources used in the sphere of circulation. A revolving funds include that part of the assets that are involved in the production process, while losing material form, and completely transfer their own value to the finished product. Moreover, they are in circulation no more than one production cycle.
Working capital management is based on the rational use of the funds of these funds. And for this it is necessary to clearly know which elements are included in each of them. So, revolving funds include, first of all, the reserves required to start the production cycle, that is, raw materials and materials, energy and other objects of labor. In addition, the same group includes elements such as semi-finished products manufactured at the enterprise, and work in progress, that is, products that have not passed all stages of the production cycle. A good example is the individual parts that go into the assembly shop. Deferred expenses are considered part of the revolving fund. Such costs involve the mapping of funds that are used to modernize and improve existing products and technologies at present, but will be used in the manufacture of goods in the subsequent period.
With circulation funds, the situation is simpler, since they include the amount of cash at the cash desk and on the accounts of the enterprise used in the calculations, unsold finished goods and those goods that are in transit, which means they cannot be considered sold. For the rational use of these resources, it is necessary to draw up planned and actual estimates and reports. Indeed, qualified working capital management has a positive effect on the results of the company, namely, on the amount of net income that remains at the disposal of the enterprise. The specialist gets the opportunity not only to choose the most profitable way to include the costs incurred in the price of the finished product, but also to reduce their costs if possible by upgrading or finding suppliers of cheaper raw materials.
Of course, the main goal of each leader is to get as much profit as possible at the existing cost level. At the same time, in order to maintain the image of the company at the proper level, it is necessary to be responsible for the quality of the products or services offered. In order for the planned indicators to correspond to the current ones, certain working capital management methods should be chosen that will allow us to develop a clear action plan and achieve tangible results. For example, the determination of the working capital rate allows you to set the minimum amount of resources that is required to ensure an uninterrupted production cycle.
Each company is obliged to draw up its own accounting policy, which reflects the goals and objectives of the company. In addition, this allows you to balance your expenses in terms of taxation. An increase in the speed of the production cycle leads to an accelerated capital turnover, which means that it quickly brings profit to the head. Of course, for the effective implementation of each method, a specialist should be appointed who will manage the working capital.