Capital turnover- a repetitive process in which capital moves from one form to another until it returns to the original one. In one turnover, capital: from the monetary form passes into the form of labor and means of production, then the production process takes place, then the goods are sold, and the capital returns to the monetary form.
Functional forms of capital at these stages:
1.Money
2.Production
3.Commodity
The second stage belongs to the sphere of production, the first and third - to the sphere of circulation.
Industrial capital - the capital that is involved in this circulation, passes from one form to another.
The term of capital turnover is the period of time during which all capital passes in turn the three stages described above and returns to monetary form.
The capital turnover rate is calculated by the number of full turnovers per year. Accelerated turnover can be achieved by shortening delivery times and / or production times. Another factor affecting the rate of turnover: the ratio with which capital is divided into fixed and circulating. An increase in the rate of capital turnover makes it possible to increase the efficiency of its use and increase profits.
To calculate the balance sheet of the enterprise. It is these numerical characteristics that are an indicator of the profitability and well-being of the company.
Fixed and circulating capital are the summands of the part of the enterprise's capital, which is financial, material and intellectual values that are the property of the company and serve in the process of activity to make a profit. The entrepreneurial idea of the founder of the company also determines the required amount of capital.
It is known that no company can be formed and start its functioning without initial capital, which is put into circulation at the very beginning. Successful launch of an entrepreneurial idea and keeping the new business competitive in the market depends on its correct calculation and planning of all financial operations at the initial stage. Therefore, a novice businessman, during the planning period of the implementation of his undertaking, should carefully estimate the permissible minimum and maximum possibilities of the financial resources available and necessary to achieve the goal. The determination of the required amount of the initial capital is made depending on the industrial sector in which the implementation of the business idea is supposed to be.
When calculating the required initial capital, the distribution of such capital into working capital and fixed capital is of great importance. During planning, it is also very important to determine which is a mandatory element in calculating the initial capital.
What does the division into fixed and working capital mean?
Main capital
It includes buildings, land plots, transport, equipment, tools, machine tools, innovative property, patents, licenses.
That is, this is the movable and immovable property of the company, which has a specific value, determined using the depreciation methods of accounting for a given time period. Fixed assets have been involved in the production process for several years and transfer their value to finished products or goods in stages, over several years.
Working capital
The concept of working capital includes everything that is planned to be used for employees of the enterprise, as well as for production or sale.
Fixed working capital has the following components:
Cash (salary fund, cash on hand, the amount of cash for the purchase of raw materials, materials or goods);
Material assets (short-term tools, manufacturing materials, raw materials, products or purchased goods for sale).
The ratio of working capital and fixed capital
Determining the structure and ratio of parts of working capital and fixed capital, it is necessary to take into account the proportional correspondence of all parts in its total volume. These miscalculations are of great importance when choosing to purchase a building for an office and production halls or retail space and equipment. If you do not take into account the finances spent to the amount of funds left for working capital, that is, raw materials, goods for sale, money for their purchase, funds for the salaries of employees, then the company at the very beginning may simply "suffocate", that is, stop activities. Therefore, the more the scale of the enterprise is planned, the greater the need for an increased volume of working capital.
Depending on the industrial sector, fixed and circulating capital also has a different ratio. It is determined depending on the complexity, consumption of materials, as well as the labor intensity of the products.
Darron Kendrick is professor of accounting and law at the University of North Georgia. He received his Master's Degree in Tax Law from Thomas Jefferson Law School in 2012, and was certified by the Alabama Board of Public Accountants in 1984.
The number of sources used in this article:. You will find a list of them at the bottom of the page.
Working capital is the aggregate of cash and liquid assets that are required to finance the activities of a company. Knowing the amount of working capital, you can more effectively manage the company and make investment decisions. The value of working capital characterizes the ability and speed of repayment of the company's current liabilities. If a company does not have working capital or it is very modest, then most likely it will not be successful. Calculating working capital is also useful for assessing the efficient use of a company's resources. Formula for calculating working capital:
Working capital = current assets - current liabilities
Steps
Part 1
Calculating working capital- Typically, current assets and their total value are shown on the company's balance sheet.
- If the balance sheet does not have a summary of current assets, go through the entire report and look for items related to current assets. Add up the values of the points that meet the definition of current assets to get the total value of current assets. For example, add the values of the following items on the balance sheet: Accounts Receivable, Inventory, Cash and Cash Equivalents.
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Calculate current liabilities. Current liabilities are liabilities that need to be settled within one year. Current liabilities are time liabilities, accounts payable and short-term debt liabilities.
- Typically, current liabilities and their total value are shown on the company's balance sheet. If the balance sheet does not have a total of current liabilities, go through the entire report to find the items related to current liabilities and add up the values. For example, add up the values of the following items on the balance sheet: Accounts payable, Unpaid taxes, Short-term loans.
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Calculate the working capital. To do this, subtract the value of current liabilities from the value of current assets.
Part 2
Understanding and managing working capital-
Calculate the liquidity ratio. To analyze the financial condition of a company, many financiers use the current liquidity ratio. To calculate the current liquidity ratio, you need to know current assets and current liabilities, but as a result you will not get the amount in rubles, but the ratio.
Analyze the financial condition of the company using the current liquidity ratio. This ratio characterizes the company's ability to pay off its current financial obligations, that is, to pay its bills. Typically, this ratio is used when analyzing different companies or industries.
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Working capital management. Company executives must monitor the values of the quantities that make up working capital in order to maintain them at an optimal level. Such quantities are warehouse stocks, receivables and payables. Managers should evaluate the possible positive and negative aspects associated with the surplus or shortage of working capital.
- For example, a company that lacks working capital will not be able to pay off current liabilities. On the other hand, excessive working capital is also a negative indicator, since excess capital should be invested in the development of the company in order to increase its profitability. For example, surplus working capital can be invested in acquiring additional manufacturing facilities or in increasing the number of retail stores. Such investments will lead to an increase in the company's income.
- If your company has a surplus or shortage of working capital, read the Tips section to learn how to reduce or increase working capital.
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Calculate current assets. Current assets are assets that can be converted into cash within one year. These assets include cash and short-term capital. For example, accounts receivable, prepaid expenses, and inventory are current assets.
Working capital is distinguished by a short service life and a price that is immediately attributed to production costs (purchase of materials, raw materials, products intended for sale, components, semi-finished products). As a definition, this concept means the value expression of various products that turn around in the production process only once. At the same time, they transfer their entire price to the manufactured products, that is, they create its cost price.
Working capital is the same working capital that the organization consumes to carry out its own production activities. They differ in one feature - they are completely consumed by the enterprise during one period of the normal production cycle. All working capital consists of:
Production stocks (raw materials, semi-finished products, materials, electricity, fuel, spare parts, components; costs of work in progress; future expenses; finished marketable products).
Accounts receivable with a maturity of more than 12 months;
Cash on accounts and at the cash desk;
Short-term financial investments;
Other current assets.
There is a certain classification of working capital:
1. Revolving industrial funds, consisting of:
Production supplies (basic materials and raw materials, fuel, purchased semi-finished products, low-value and quickly worn items, auxiliary substances);
Costs of future periods;
Funds that are in production (semi-finished products of our own production).
2.consisting of:
Unsold products in warehouses;
Products shipped but unpaid;
Goods intended for resale.
Cash on accounts, in cash and securities.
The main purpose of management control is to determine the most optimal size and clear structure of these funds. You should also analyze the sources of their funding. Working capital is divided into:
Permanent - part of current assets, the need for which practically does not change during the production cycle; this minimum amount of current assets is a sine qua non for normal production activities.
Variable capital - additional capital required for the implementation of various unforeseen operations.
Net working capital is a very important ratio that is used when carrying out financial analysis of a company. It characterizes the amount of the capital that is free from all short-term liabilities. It also has another name - working capital. It is necessary for the stable maintenance of the financial stability of the organization. If the current assets exceed the value, this means that the company can easily repay these obligations and has reserves to expand its activities.
Own working capital indicates what part of working capital finances with its own funds. Its presence and size is one of the most important characteristics of an organization's financial stability. The amount of equity capital is established as follows: the amount of short-term liabilities is deducted from the amount of current assets. The lack of this capital leads to a significant decrease in the constant and an increase in the variable part of assets. This state of affairs testifies to the growth of the financial dependence of the organization and its unstable position. The state of this indicator is reflected in which it characterizes the ratio of the value of current assets to the capital raised.
Circulation of capital and its stages. Three functional forms of capital.
The movement of any capital invested in production begins with its monetary form. The owner of capital advances a certain amount of money for the acquisition of factors of production: means of production and labor.
1. The first stage of the circulation of capital is the stage of movement (circulation). Money capital is converted into elements of productive capital. The function of money capital is the connection of labor with the means of production.
Slave. force
Means of production
2. The second stage is the production process itself, as a result of which goods are created in which surplus value is embodied. At this stage, capital takes the form of production capital, the function of which is to create new value and surplus value. (…NS…)
3. The third stage is circulation, where the goods are sold (T'-D '). Here capital takes on a commodity form, the function of which is the realization of value and surplus value.
The movement of capital, in the process of which it successively transforms from one form into another and returns to its original form, K. Marx called the circulation of capital. Capital is not a thing that is at rest, but a constant movement.
General formula D - T< - …П… - Т’ – Д’
Industrial capital is any capital used in any branch of material production. The condition of the continuity of finding capital is certainly in three forms.
Capital turnover. Fixed and working capital. Physical and moral deterioration of fixed capital. Depreciation. Turnaround time and its constituent parts.
The circulation of capital, defined not as a separate act, but as a periodic process, is called capital turnover. The sum of the time during which the entire advanced capital value passes through the stages of production and circulation is the time of capital turnover.
where n is the number of capital turnovers,
O is the accepted unit for measuring the rate of capital turnover (year),
o - turnover time of the given capital.
If o = 3 months, then n = 12/3 = 4 turns.
The different rate of capital turnover is explained by the difference in the conditions of production and circulation. The duration of the turnover of capital is significantly influenced by the time of production and the time of circulation.
Production time is the time during which capital is in production. It includes:
Time of direct impact on the subject of labor;
The time of exposure to the subject of labor of natural processes, as well as those associated with production technology (breaks, downtime in the production process);
The residence time of production capital in the form of inventories (products in stock).
The time during which the direct influence of the worker on the object of labor is carried out is the working period. It represents the time, formed from a series of consecutive and interconnected working days, required for a given industry to manufacture a finished product. It is during the working period that value and surplus value are created. The length of the working period affects the rate of turnover and the amount of advanced capital. The shorter the working period, the faster the capital turnover, the less capital should be spent on production.
The time of circulation has a great influence on the duration of capital turnover, i.e. the time during which the capital is in the stage of circulation. In different industries, this time is made up of the time it takes to transport the goods from the manufacturer to the consumer, the time the inventory is kept, the time the finished goods are sold, and the time the means of production and labor are purchased.
The advanced capital is what is advanced initially for the acquisition of funds and objects of labor (raw materials, fuel, buildings).
The capital used (fixed) is the capital that functions in the production process, the value of the machines, buildings, structures used.
The consumed (working) capital is the capital that is consumed in the production process (raw materials, materials, depreciation, fuel, energy).
Those elements of productive capital that are wholly involved in the production process, but transfer their value to the product in parts as it wears out, are called fixed capital (capital that is used to purchase buildings, structures, machinery, equipment, etc.). In the composition of fixed capital, active and passive elements are distinguished. Active ones influence the subject of labor (machines, equipment, devices and devices). Passive elements serve the production process. They consist of buildings, structures, vehicles.
Working capital is a part of productive capital, the value of which, in the process of its consumption, is completely transferred to the product and fully returned in monetary form during each circulation of capital. These are the costs of purchasing objects of labor, raw materials, auxiliary materials, fuel, which are consumed entirely in the production process. They either materially enter the finished product, or contribute to its creation. Their cost is fully transferred to the created goods.
The division into constant and variable capital is due to their unequal role in the process of creating value and surplus value. The value of constant capital is transferred to the finished product by concrete labor without changing. In the process of production with abstract labor, workers create an equivalent of labor power for the required time, and surplus value for surplus time. Therefore, variable capital brings surplus value, but in reality the capitalist does not advance the worker, but vice versa.
The initial cost of fixed capital is determined by the labor costs that are really necessary (or that were produced) in the creation of this machine (equipment).
The replacement value is determined by the labor costs required for the reproduction of a given machine in a given period of time.
The physical wear and tear of fixed capital lies in the fact that the means of labor in the process of their use lose their use value, and their value is transferred to the product to the extent that they lose their use value.
Types of physical wear and tear:
The means of labor are subject to physical wear and tear in the process of their use in proportion to their intensity and the duration of their functioning;
When they lose their inherent properties under the influence of atmospheric conditions, as well as as a result of internal processes occurring in the structure of the material from which they are made.
Obsolescence of fixed capital occurs as a result of depreciation of capital, regardless of the degree of its physical depreciation. Views:
It is caused by the reduction in the cost of production of machines of the previous design due to a decrease in their cost as a result of an increase in labor productivity;
It is associated with the creation of machines for the same purpose, but with a more advanced design, which creates conditions for reducing the cost per unit of production.
Depreciation is the process of transferring the cost of capital consumed to the finished product.
A = cost of fixed capital / number of years (service life)
The amortization fund is a source of funds for capital repairs. It is formed from depreciation deductions corresponding to parts of the value of the means of labor transferred to the goods produced.
The ratio of the amount of depreciation deductions to the value of the means of labor, expressed as a percentage, is the depreciation rate. It takes into account the physical and moral wear and tear of fixed capital.
Residual value = acquisition value - depreciation of the machine
Accelerated depreciation is an accelerated transfer of the cost of capital consumed to a finished product.
Unlike other parts of working capital, capital advanced for the purchase of labor power is not transferred to the product, but is reproduced in a given production process, increasing by the amount of surplus value. Therefore, at the stage of circulation, it is not the advanced variable capital that is realized, but the new value.
The annual mass and the annual rate of surplus value depend on the rate of turnover of variable capital.
The sum of the surplus value produced during the year with one or another advanced variable capital is the annual mass of surplus value. It is equal to the surplus value produced in one turnover of capital multiplied by the number of turnovers of capital per year.
The ratio of the mass of surplus value received in one year to the advanced variable capital is the annual rate of surplus value. It is equal to the rate of surplus value received in one turnover of variable capital, multiplied by the number of its turns per year. The faster the variable capital turns around, the greater the mass of surplus value that is appropriated by the capitalist.
The subject and logic of the study of the circulation of social capital. Individual and social capital. The aggregate social product and its composition in terms of value and in natural-material form. Two divisions of social production.
In the first volume of Capital, Marx examines the reproduction of individual capital. In this case, it was possible to confine oneself to considering the movement of the value of a commodity and not consider the movement of its use-value. The point is that the natural form of goods is indifferent to the individual capitalist. For him, the further movement of the sold goods is also insignificant. It follows from this that when considering the reproduction of individual capital, one can abstract from the natural form and the further movement of the sold goods. The goal is to show how the reproduction of value and surplus value is carried out.
However, each individual capital does not exist in isolation from each other. In the process of movement, individual capitals are intertwined due to the social division of labor. Individual capitals in their interconnection and intertwining form the movement of social capital. The result of the functioning of all social capital is the aggregate social product (SOP).
SOP is the entire mass of material goods produced in a society per unit of time, usually a year. In the conditions of commodity production, SOP takes on a commodity form.
In terms of cost, the SOP breaks down into three elements: the cost of the expended means of production (C) and the newly created value (V + m).
In its natural-material form, SOP is a set of means of production and consumer goods. The principle by which the SOP is divided into means of production and consumer goods is its functional purpose.
In accordance with the natural division of the SOP, all social production is divided into 2 large divisions:
1. Production of means of production.
2. Production of consumer goods.
Thus, the main problem is the problem of SOP implementation in terms of cost and in natural-material form.
The first attempt to create a model of capitalist reproduction was made by F. Kene. He laid the foundations of the theory of implementation, but limited himself to only considering the movement of the agricultural product. Subsequently, the classics of political economy A. Smith and D. Riccardo turned to the problem of reproduction. The starting point of their theory was the so-called "Smith's dogma" - the provision according to which the value of the SOP breaks down only into income: salary, profit and rent.
Thus, Smith and Riccardo reduced the value of the SOP only to the newly created value. This conclusion was made on the basis of the fact that the working day is divided into the required time and surplus time, i.e. they characterized the work of an employee only from the quantitative side. They did not take into account the fact that labor is of a dual nature, and while abstract labor creates newly created value, concrete transfers the value of the expended means of production (C). The mistake of the classics made it impossible to understand how the process of realization of the social product and the reproduction of social capital as a whole is carried out. For the first time this problem was solved by K. Marx, relying on the theory of the dual nature of labor.
When creating the theory of reproduction, Marx used the method of abstraction, while proceeding from the following methodological premises:
1. Goods are bought and sold at cost;
2. The production process lasts one year;
3. Society consists of only two classes: capitalists and workers;
4. The organic composition of capital and the degree of exploitation remain constant;
5. The entire cost of constant capital (C) is transferred to the finished product during the year;
6. There is no foreign trade.
Simple reproduction. Realization conditions for simple reproduction. Accumulation and expanded reproduction of social capital. Terms of sale for expanded reproduction. Two types of expanded reproduction: extensive and intensive.
Marx's analysis begins with simple reproduction, which he examines with a digital example.
Let's say the capital advanced to the first division is 5,000.
Reproduction scheme (1 year):
C / V = 4/1, m '= 100%
C / V = 4/1, m '= 100%
II 2000C + 500V + 500m = 3000 (2000C = 1000V + 1000m)
SOP = 9000 (means of production 6000, consumer goods 3000).
Of the 6,000 means of production produced in a society (department I), 4,000 can be realized within it. The remaining 2000 within I cannot be realized, since this amount requires consumer goods, not means of production.
In subdivision II, consumer goods for 3000 were produced. Of these, consumer goods for 1000 (500V + 500m) can be sold inside II. The remaining 2000 cannot be realized, because the means of production are needed for this amount.
Thus, within I, the means of production for 2000 were not realized, and within II, consumer goods were not sold for the same amount. These goods are exchanged by I and II.
This implies the first condition for realization in simple reproduction: the newly created value in I must be equal to constant capital II
Condition 2: the value of product I must be equal to the sum of constant capital I and II.
I (C + V + m) = I C + II C
Condition 3: the value of product II must be equal to the sum of the newly created value in I and II.
II (C + V + m) = I (V + m) + II (V + m)
In the second year, everything is the same.
Expanded reproduction by digital example.
C / V = 4/1, m '= 100%
I 4000C + 1000V + 1000m = 6000
C / V = 2/1, m '= 100%
II 1500C + 750V + 750m = 3000
Suppose = 50%.
I 4400C + 1100V + 500m = 6000
Within I, the means of production in the amount of 4400 can be realized and the means of production in the amount of 1600 will remain unrealized.
II 1600C + 800V + 600m = 3000
The accumulation fund in II is equal to 150 (∆C + ∆V)
I = 5500 = 4400C + 1100V
I 4400C + 1100V + 1100m = 6600
II 2400 = = 1600C + 800V
II 1600C + 800V + 800m = 3200
Terms of sale for expanded reproduction:
1) I (V + m)> II C
I (V + ∆V + m) = II C + ∆C
2) I (C + V + m)> I C + II C
I (C + ∆C + V + ∆V + m) = I C + ∆C + II C + ∆C
3) I (V + m) + II (V + m)> II (C + V + m)
I (V + ∆V + m) + II (V + ∆V + m) = II (C + V + m)
Note:
1. Marx revealed only the possibility of capitalism development not only with simple, but also with extended reproduction due to the creation of its own market, i.e. the development of capitalism occurs at the expense of internal sources.
2. In capitalist society, the production of means of production increases faster than the production of consumer goods.
3. Exchange between the first and second divisions shows the relationship between production and consumption. Production cannot be carried out for the sake of production itself, the ultimate goal is always consumption.
There are two types of expanded reproduction: extensive and intensive. Extensive occurs due to the involvement of additional factors in production, i.e. due to quantitative growth. Intensive is associated with the qualitative improvement of all factors of production. To ensure an intensive path of production development, it is necessary:
Renovation of equipment and modernization of production;
More efficient use of all resources;
Progressive shifts in the sectoral structure of production;
Professional development of personnel;
Improving management, etc.
An intensive type of reproduction can be carried out in different forms:
Resource-intensive (capital-intensive), in which an increase in labor productivity is achieved by increasing costs per unit of output;
products;
Neutral. Assumes that although the increase in productivity is achieved at the expense of additional costs of social labor, its savings offset these costs.
The intensive type is impossible without the introduction of the achievements of scientific and technological revolution. The main consequences of NTP are as follows:
Outstripping growth rates of industries that determine scientific and technological progress;
An increase in the proportion of industries that determine technical progress in all social production.
