Indicators of business activity and turnover of funds...

Indicators of business activity and turnover of funds

The financial condition of an enterprise, its solvency directly depend on how quickly the funds invested in current assets turn into cash. The current expenditure of funds and their income, as a rule, do not coincide in time - as a result, the enterprise needs more or less financing in order to maintain solvency. The lower the turnover rate of assets, the greater the need for financing.

External financing, as is known, is costly and has certain restrictive conditions. But own sources of capital increase are limited, primarily by the ability to generate the necessary profits. Thus, managing the current assets, the company gets an opportunity to depend less on external sources of receiving cash and increase its liquidity. It is no accident that efficient management of turnover is considered as one of the ways to satisfy the need for capital.

The value of the analysis of turnover is that it allows you to see the picture of the financial state of the enterprise in dynamics. If the liquidity indicators allow an estimate of the ratio of current assets and short-term liabilities in the statics, i.e. as of a specific date, the analysis of turnover makes it possible to establish the reasons that accounted for a particular amount of current assets.

During the analysis, general and particular indicators of turnover are used (Table 12.1). The main differences in these indicators are determined by the scope of their use, purpose, and the information base used for their calculation. Substitution of some indicators by others leads often to incorrect conclusions.

Table 12.1. Comparative characteristics of turnover indicators

Comparison criteria

Turnover indicators

General

Private

Intended purpose

General characteristics of the turnover of funds. Characteristics of the efficiency of the use of assets

Analysis of the effectiveness of management of individual elements of current assets for the purpose of making managerial decisions

Scope of application

Business Efficiency Analysis. Basis for financial forecasts

Evaluation of the duration of individual stages of the operational cycle

Information Base

Financial (management) reporting

Internal data on the turnover of individual items of current assets

Analysis subject

External and internal

Internal

The total turnover is the period of turnover:

where A is the average value of current assets for the period; D - duration of the analyzed period, days.

This indicator characterizes the average duration of one turnover in days and the fewer days it takes to turn them into sales proceeds, the more effectively these funds are used.

No less important characteristic of asset turnover is the turnover ratio, which characterizes the number of revolutions during the analyzed period, committed by funds invested in assets. Another analytical value of this indicator is that it reflects the return on revenue, showing how many rubles of revenue the enterprise will receive per ruble invested in assets.

These formulas have their own modification depending on the object and purpose of the analysis. Thus, when analyzing the turnover of current assets, similar formulas are used, discussed in Ch. 8.

Information on the amount of revenue is contained in the Statement of Financial Results.

The average value of assets, including negotiable, according to the balance sheet is usually determined by the formula of the average arithmetic. But if the analysis is conducted for a period longer than a quarter (half a year, a year), such a method of calculating the average value can lead to significant distortions. A more accurate calculation of the average value of assets will be obtained from monthly data on asset balances. Then the value of assets is determined by the average chronological formula:

where Ox - the amount of assets on the first date of the reporting period; Op - the value of assets on the last date of the reporting period.

Slowing the turnover of assets leads to their growth in the balance sheet, acceleration of turnover - to reduce them. In these conditions, the enterprise either has a need for additional financing, or there is a release of funds from the turnover in connection with the acceleration of their turnover.

Calculate the amount of additional funds attracted into circulation (freed from turnover) in the simplest way using the formula

П (В) = В: Д- (Та-Тп),

where П (В) - attracted (released) as a result of changes in asset turnover; Ta, Tp - the period of turnover of assets in the analyzed and past period, respectively.

Special indicators of turnover. If the analysis of indicators of general turnover allows you to assess the main changes in the turnover of current assets in general, then the analysis of particular indicators of turnover allows you to see the reasons for the change in the turnover rate of funds at certain stages of the operational cycle. This, in turn, allows you to exert control over the terms of turnover of individual items of current assets, and, therefore, on the amount of their balances in the balance sheet. Private turnover is characterized by the transition of a specific element of current assets from one functional form to another. So, for industrial stocks, the indicator of the transition to the next functional form or private turnover is their expenditure, for funds in work in process - the output of finished goods, receivables - payment by customers, etc.

An example of a particular turnover indicator is considered in Ch. 8 an indicator that characterizes the shelf life of industrial reserves.

It allows you to estimate the average residence time of stocks in the form of raw materials in the warehouse.

Analyzing the financial state of the organization, it is necessary to remember the existence of a direct link between the asset turnover period and their value in the balance sheet.

Let's return to the known formula of the period of turnover of current assets:

From the formula it is clear that the amount of current assets in the balance sheet directly depends on the volume of sales and the period of their turnover. This formula allows you to calculate, for example, how the volume of current assets will increase as the volume of sales increases and what is the resulting need for additional financing in connection with this.

Simultaneously, the formula allows to estimate the value of current assets depending on the change in the period of their turnover.

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