Smart Business Development with the Casting Couch Process Now

Working capital is the difference between current assets and current (short-term) liabilities of an enterprise or organization. The amount of working capital reflects the amount of funds that the enterprise owns in current assets and is an important characteristic of financial sustainability. But what is net working capital? Let’s find out.

The program analyzes working capital in the Business Analysis section.

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  • Working capital formula
  • Working capital = Current assets – Current liabilities
  • Working capital is formed from:
  • stocks of raw materials and materials ,
  • work in progress ,
  • low-value and wearing items ,
  • finished products ,
  • accounts receivable .

Their total value determines the amount of money needed to cover them. If the current assets are less than current liabilities, then the working capital will be negative. The amount of working capital of an enterprise, organization depends on:

  • the amount of costs for the acquisition of raw materials and direct overhead costs in the production of goods that are easy to sell;
  • the duration of the production cycle and the sale of products;
  • the cost of indirect overhead costs in the production and sale of products,
  • the volume of the loan received and the period of its return.
  • Working capital in the balance sheet is the 2 section of the asset balance.

Components of working capital satisfy the liquidity criterion. Liquidity allows you to quickly turn the enterprise’s funds into cash and finance permanent operations. When you have a proper idea regarding what is net working capital then you can have a better understanding of the same now.

To measure the efficiency of using working capital, use the indicator of profitability of working capital . The indicator is calculated by dividing the net profit from the sale of products or another financial result by the amount of working capital.

To assess the efficiency of working capital in business practice, the turnover ratio (turnover) and the turnover period are used.

So, we will determine the conditions for optimization of the Company’s PSC:

Taking into account the boundary value of the PSC, the investment in non-current assets is within the limits of the growth of own capital (the limits of the received profit less the use of profit for non-production purposes) and long-term loans attracted. As the Company’s investment program is close to completion, compliance with this rule is quite likely and the gradual growth of the PSC to the previous level does not cause doubts.

Growth of own capital is a consequence of growth of volumes of the received profit. The condition for the growth of the Company’s profit is a significant increase in sales volumes. The need for significant increments in sales volumes is associated with the appearance of additional fixed costs in connection with the commissioning of new production facilities (a new workshop, the costs of construction and equipment of which were the essence of the growth of non-current assets of 2003-2004). Thus, a vital need to pay attention to the availability of a portfolio of preliminary orders, which the Company must have at the time the new production, is launched.

 

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