Working capital of the enterprise

It is customary to distinguish between the fixed and working capital of an enterprise. Under the term material factors of durable use are meant. We are talking about buildings, cars, equipment and so on. The working capital of the company is constantly changing, as it is spent to purchase the necessary funds for a certain cycle. Under it you can understand the salary for employees, the means to purchase raw materials and so on.

Working capital of the enterprise

Each production process is a combination of means of production and labor. As already mentioned above, they represent the working capital of the enterprise. Circulating assets are the most important element of production. They help the company to function continuously.

Circulating assets are money means, which the management advances in order to create production assets, as well as various types of circulation funds.

Industrial production assets are understood as means of production that take part in the production process only once, transferring their value to manufactured products, while losing their own natural-material form. We are talking about raw materials, components, work clothes and so on.

The circulation of funds includes funds that somehow serve the process of selling products. In the production process, they do not take any part, but they are needed to ensure the unity of sales and production.

The working capital of the organization is in continuous motion, it can function in several spheres simultaneously. Circulation cycle of the production cycle of stages from the stages:

- Working capital passes from the monetary form to the commodity form. That is, there is a purchase of objects of labor;

- entering into production, circulating assets, turn into finished products;

- finished products are sold by consumers - that is, it is sold. The current assets at this stage are again transferred to the cash form.

Part of the money received will be used again for the purchase of items that provide the labor process and so on.

Continuity of the production process is achieved due to the fact that the current assets are simultaneously located in each of the three stages. At these stages they are not the same amount of time. Everything depends on the specific situation and certain factors (sales factors and so on). Delayed working capital can cause serious trouble.

The working capital of the enterprise is classified into:

- Sphere of turnover. It is divided into circulation funds, as well as circulating production assets.

- Scope of the rationing. In this case, it is divided into non-standardizable and standardized means. The standardized funds establish the minimum sizes, and the non-standard ones are established based on the actual data.

- Sources of formation. This refers to the division into own and borrowed. As it is clear from the names, own belong to the enterprise, and borrowed ones to someone else. Organizations really often have to resort to all kinds of loans. The need for them arises when there is a shortage of own funds.

The structure of working capital is the ratio of individual elements to their aggregate. Its analysis can be very useful, as it is an excellent way of diagnosing the financial condition of a firm. With it, it can be found out that the finished product is not getting well, the working capital is used ineffectively. Also, it provides an opportunity to determine the circumstances under which the profit would be much greater. Experts should carry out such an analysis.