Each company seeks to increase the efficiency of use of its capital. The profitability of the organization, its market value and stable development in the future depend on this. For this reason, the corresponding services of each enterprise tirelessly conduct analytical studies of various economic indicators. This allows you to evaluate the effectiveness of the organization.
One of the important issues during the study is the assessment of working capital. Determination of the need for working capital is carried out according to the established methodology. How to control this part of the assets of the enterprise will be discussed below.
Characteristic
Determine the need for working capital allows a certain technique, which is actively used by the analytical service of almost every modern enterprise. This is necessary for certain reasons.
The capital that takes part in the turnover is used to organize technological cycles. It is completely consumed during one production period and changes its shape. First, financial resources are allocated for various technological operations. Next, we get finished products that go on sale. After its implementation, the organization makes a profit.
In other words, current assets are fully consumed during one cycle. It is for this reason that they are called negotiable. The faster these resources turn back into money, the more profit the enterprise has. If such funds accumulate at the enterprise more than necessary, capital is exploited inefficiently. With a lack of current assets, production technology failures and equipment downtime appear. This is also a negative phenomenon.
Composition and sources of formation
Determining the needs of the enterprise in working capital allows you to optimize the amount of financial resources. In this case, the speed of one production cycle will be optimal. The company will be able to get the maximum profit from the use of its existing resources.
Working capital includes inventories, finished goods, work in progress, cash on hand, as well as credit funds that were provided to customers. The listed balance sheet items can be formed both from own and borrowed sources of financing.
It is a structural review of assets in circulation that allows us to make a decision on measures to improve the situation in production. It should also be noted that the use of own sources of financing is cheaper for the organization. However, a harmonious expansion of the company's activities in practice is impossible without borrowing working capital.
Rationing
Determination of the need for working capital for each organization is made taking into account the features of its functioning. The indicator of the amount of resources for conducting the technological cycle is affected by its duration, seasonal fluctuations in the market, conditions of accounts payable and receivable.
One of the effective methods for determining the need for assets for conducting production activities is rationing. This is the optimal amount of each asset item in circulation, which is able to ensure continuous production of finished products, fulfillment of the production and sale plan.
Each enterprise operates in special conditions. The established amount of working resources for one enterprise may not be suitable for another organization. Therefore, when choosing the normative values of all articles, they take into account the peculiarities of the company’s work within a particular industry. Compare several competing enterprises.
Determination methods
There are several ways to determine the needs of the enterprise in working capital. Analysts apply one of the following methods. The first technique is called the coefficient approach. This method involves dividing existing working resources by the degree of their change under the influence of output. Based on this information, a decision is made on the need to increase or decrease the amount of funds in circulation.
The second approach is called the analytical method. It takes into account the amount of actual average fund balances for each item. At the same time, the growth rate of production is also taken into account.
The third approach is called direct counting. It involves an accurate definition of the norms for each article of assets in circulation. The fourth category includes all other approaches. This can be, for example, a graphical method, expert judgment, etc.
Rationing procedure
That rationing is one of the most popular ways to determine the needs of the technological cycle in financial resources. In the calculation process, the minimum amount of funds that is necessary for each production operation for its uninterrupted flow is determined.
First, the required amount of resources for each individual element of current assets is determined. It is estimated how quickly this or that resource is spent, and also what are its real reserves at the enterprise. Next is the total financial need of the enterprise. For this, the analytical service makes a simple calculation. The formula helps to determine the need for working capital: = * = / * , where is the standard for a certain item of current assets, is the daily expense of own funds to finance the turnover of a separate article, is the expense for a certain period, T - the duration of the study period, NZ - the stock rate for a particular element.
After determining the norms for each individual article, they are summarized. This allows you to determine the aggregate need of the organization in financial sources to finance production activities.
Analytical method
The company's need for working capital can be calculated by various methods. One popular approach is the analytical approach. This calculation option is suitable for those organizations that do not plan to carry out large-scale changes in their work in the future.
The presented approach allows us to determine the standards in an enlarged form. At the same time, the growth rate of production in the future period and existing needs for financial resources in the past are taken into account. Correction is made under the influence of changes in the planned volume of products.
An example of the calculation of the analytical method
The analytical method allows you to calculate the required number of working capital. Determining the need for working capital can be considered by example. The company produced products at a cost price of 530 thousand rubles last year. Actual balances at the beginning of the period under review amounted to: I quarter - 34 thousand rubles, II quarter - 20 thousand rubles, III quarter - 22 thousand rubles, IV quarter - 28 thousand rubles. It is planned that this figure at the beginning of next year will be 30 thousand rubles. Output will increase. The cost of sales will be, according to the plan, 750 thousand rubles.
The analytical method involves a certain calculation. The average balance of working resources is determined:
Os = (0.5 * 34 + 20 + 22 + 28 + 0.5 * 30) / (5-1) = 25.5 thousand rubles.
One-day issue in fact is: 530/360 = 1.47 thousand rubles.
The stock rate last year is calculated in days: 25.5 / 1.47 = 17.34 days
In the planning period, the company will produce daily products in the amount of: 750/360 = 2.08 thousand rubles.
By analogy with last year, the norm of working resources in the planning period will be: 17.34 * 2.08 = 36.07 thousand rubles.
Regression analysis
Determining the organization’s need for working capital using the method presented above is not always possible. It can not be applied in the planning process of non-normative resources in circulation. These include receivables, financial investments and cash on hand.
In order to objectively calculate the need of an enterprise for financial resources to carry out its production activities, the regression account method is used.
The presented technique allows you to determine the number of current assets in the planning period, taking into account one important nuance. This is the regression coefficient. It is characterized by the dependence of the number of working capital on changes in production volume.
Regression Analysis Calculation
Determining the need for working capital of a corporation, enterprise can be performed by calculating the regression method. For this, a certain formula is used: PO = OS + Cr * SP, where PO is the planned need of the enterprise for working resources, OS is the number of working capital that does not depend on the volume of production, Cr is the regression coefficient (shows how much the number of assets varies turnover with an increase or decrease in output), joint venture - the cost of production.
The calculation is also made for each article of current assets separately. This allows you to take into account their specifics, to identify ways to improve the use of financial resources by the enterprise. After that, the obtained values are summarized.
It should be noted that to calculate the norms for inventories for calculations, an indicator of the cost of finished products is used. To calculate this indicator in the study of receivables, financial investments, the sales revenue indicator is used.
Method Comparison
The above methods allow you to calculate the required number of working capital. Determination of the need for working capital for each case is carried out using a specific technique. For current planning, a direct account approach or an analytical method should be used. The coefficient method is suitable for long-term planning.
In the context of the need for financial resources for each element, the most detailed picture is represented by the direct account method. However, this approach is characterized by rather great complexity.
The calculation and analytical approach will help to identify internal reserves. They will help the company maximize the efficiency of using its own funds. However, this approach, like the method of coefficients, does not allow to cover the features of the organization. Therefore, depending on the objectives of the analysis, it is necessary to select the appropriate calculation method.
Ways to improve the situation
In the process of conducting a financial analysis, working capital should not be missed out of sight . Determining the need for working capital is an important part of the study of the financial activities of the company. Identification of the need for working capital allows you to optimize the capital structure.
If large surpluses of financial resources are found in circulation, measures must be taken to reduce them. Of particular note are receivables and inventories. For some organizations, improving the standardization process itself remains relevant. In this case, financial resources will be spent deliberately and appropriately.
In order to increase the efficiency of turnover financing, in some cases it is necessary to modernize warehouse equipment, organize supplies and other areas.
Having considered the features of calculating the need for working capital, as well as the importance of conducting such a study, we can correctly assess the amount of financial resources of the enterprise that are aimed at conducting technological cycles.