Monitoring the financial performance of the enterprise is mandatory for the organization of production activities in the best way. There are many methods for evaluating the performance of a company.
Own working capital must be evaluated, for which it is most often used security ratio. This indicator makes it clear to the management of the organization, its founders and investors whether enough funds from free financial sources are in circulation. How the assessment is made and the result is interpreted, it is necessary to study in more detail.
General meaning
Own working capital (SOS) is an absolute value. They show how much financial resources from free sources of formation were directed into circulation. After all, borrowed capital in the total number of company assets should not exceed a certain level.
If the operating activity is carried out only at the expense of paid sources of financing, this indicates the inability of the organization in the current period to pay off its obligations.
This, in turn, significantly reduces liquidity ratios and financial stability. The company operates at a loss, because at the end of the operating period, the net profit will be spent on interest on the use of capital of creditors. And sometimes it is simply not enough to calculate the debt.
Therefore, working capital is required to have a positive value. If the figure is negative, the company has a lack of them.
SOS calculation
Each enterprise calculates the absolute value of its own resources in circulation. Based on this indicator, we can conclude on the balance sheet structure, and, if necessary, optimize it. Security with own working capital is determined as follows:
SOS = Assets in circulation - Short-term liabilities
Based on the balance sheet data, the formula looks like this:
SOS = s. 1200 - p. 1500
This is an officially adopted “Financial Condition Assessment Guidelines” approach. But, based on the economic meaning of the balance sheet structure, this formula can be presented in another form:
SOS = Equity + long term duties - Non-current assets.
According to the balance sheet, the calculation has the following form:
SOS = s. 1300 + s 1530 - p. 1100
The first formula is simpler for calculations, therefore, it is most often used. But in order to delve into the organization of the balance sheet structure, it is necessary to understand the essence of the second calculation.
Coefficient determination
Together with solvency ratios (liquidity) is determined by the indicator of the availability of own resources in circulation. In contrast to the previous analysis, percentage, or relative, expressions are already considered here.
The Ratio of own working capital is as follows:
Kos = (Equity - Non-current assets) / Current assets
By balance, this technique has the following form:
Kos = (p. 1300 - p. 1100) / s. 1200
If you multiply the result by 100, you can imagine it as a percentage. A negative result indicates an ineffective balance structure. Own financial sources should be in such quantity as to cover fully non-current assets and partially provide operational activity.
Therefore, a negative value indicates the inability of the enterprise to cover even its fixed assets.
Normative
The regulatory value for domestic enterprises is clearly stipulated by law. Therefore, to find the ratio of own working capital is necessary to control the effectiveness of the company. Its value is normally higher than 0.1.
If during the analysis it was found that the company this indicator has a negative value, then there are a number of negative trends. The first of these is the lack of equity. If they exist, but the result is still negative, therefore, there is a great debt to creditors.
This situation indicates a loss of financial stability and a decrease in investment rating. Therefore, even if this standard is difficult to achieve, the ratio of working capital should be at the required level.
Calculation Example
To better understand the principle of analysis of own resources in circulation, it is necessary to consider the calculation by example.
Security with own working capital is according to the balance sheet after the end of the operating period.
For example, in the current year the company’s equity increased from 260 to 280 thousand rubles. Non-current assets also increased from 150 to 170 thousand rubles, and current assets - from 250 to 275 thousand rubles. The coefficient at the beginning of the period is equal to:
Kos0 = (260 - 150)/250 = 0,44
At the end of the reporting period, the indicator was:
Kos1 = (280 - 170):275 = 0,4
It can be concluded that the security ratio in the study period corresponded to the standard. This indicates a good financial stability of the company.
Dynamics
Own sources of working capital should be considered in dynamics. This makes it possible to identify negative trends at an early stage of their development. For this, data are taken for several periods preceding the reporting period.
For example, we can consider the indicators calculated above. To compare them, the following calculation is made:
0,4/0,44 = 0,90
This indicates a decrease in dynamics by 10%. This is a negative trend, which indicates an increase in paid capital at a faster pace than equity. The investment rating of the company falls.
She needs to either increase the amount of equity or reduce accounts payable. This will increase the financial stability and liquidity of the enterprise.
Having become familiar with such a concept as working capital, it is possible to say that this is a very important indicator for assessing the organization's performance. Based on it, conclusions are drawn about the financial stability and liquidity of the company. The security ratio of turnover with own financial sources is regulated by law and should not be less than the established regulatory value. Assessment of the indicator must also be carried out in dynamics. This reveals the current situation in more detail.
