Working capital ratio

The norm of circulating assets is an indicator determining the minimum amount of production resources, the availability of which is sufficient to ensure a normal flow of the technological process. This value for a given business entity does not have a constant value. The standard of working capital is directly dependent on the volume of output, as well as on the work of the supply and marketing service, the assortment list of goods and forms of settlements with customers. In the financial sector of the enterprise, this indicator is the most volatile.

The standard of working capital is subject to calculation in monetary equivalent. The basis of its definition is the estimate of the company's expenses for the production of goods, which is compiled for the planned time interval. The very process of calculating the indicator consists of a step-by-step sequential work.

Initially, the inventory rules for each component of working capital should be developed. These indicators are the most stable. Their change is possible only if a new assortment of manufactured goods is approved, contracts are concluded with other suppliers, technological processes are developed, and the organization of production relations is improved .

In the second stage of the calculation of the indicator, the amount of circulating resources is determined, the volume of which is necessary in order to create the required stock for the continuity of the production cycle for each element included in the technological process. Thus, there is a definition of private standards. Each element is calculated by the formula. It expresses the product of the stock-in-trade standard for a particular element taken as a quotient, obtained from dividing the consumption of a given component over the planned period by the value of a given period.

The standard of circulating assets, calculated by the enterprise, consists of a quantity that is determined by summing up the individual indicators of the reserves of productive resources. Its size expresses the minimum volumes of goods and material values that will ensure the smooth operation of the enterprise.

The standard of working capital is the sum:

- the standard of production reserves;

- the standard of work in progress;

- the standard of manufactured finished goods;

- the standard of expenses related to the forthcoming periods.

The value of the indicator for stocks related to the production of products, delineates the resources for their individual types or homogeneous groups of materials. The size of this standard directly depends on the time of finding values in the preparation stage, as well as in the period of the technological process. Including including insurance stocks are considered.

The standard of working capital in the work in process is directly dependent on four main factors. They include:

- volume and composition of products;

- time indicator of the technological cycle;

- the nature of the increase in costs during the process of release of goods.

If there is a volume of resources in the enterprise, which is insufficient to bring it to the normative level, processes occur that promote:

- reduction of output of goods;

- interruptions in production, as well as sales of finished products, and, as a consequence, failure to meet planned targets;

- infringements of schedules of deliveries of the goods to buyers.

In modern market conditions, the value of calculating the norms of the company's current resources is increasing . Their correct application in practice leads to strengthening the financial condition of the business entity and its solvency.