Provision with own circulating assets is one of the main indicators of the financial stability of an enterprise. If the company does not have equity capital, this means that the formation of current assets, and in some cases a part of non-current assets, is carried out at the expense of borrowed funds.
Instructions
Step 1
To determine the provision of an enterprise with its own circulating assets, a special coefficient is applied. It is calculated as the ratio of own circulating assets to the volume of circulating assets. In turn, the value of own circulating assets is calculated as the difference between the company's own capital (line 490 "Balance Sheet") and the amount of non-current assets (line 190).
Step 2
The ratio of the provision of own circulating assets shows what part of the equity capital remaining from the formation of non-current assets goes to cover circulating assets. The standard value of this coefficient is 0, 1, i.e. at least 10 percent of working capital must be formed at the expense of the company's own capital.
Step 3
There is a situation when the difference between equity and non-current assets of the company is negative. This means that the firm's own capital is not enough to form not only a part of current assets, but also non-current assets, i.e. part of the fixed assets and all working capital are formed at the expense of borrowed sources.
Step 4
Sometimes non-current assets are covered by 100 percent of their own capital, and circulating assets are provided with the help of loans and borrowings. In this case, the coefficient of provision with own circulating assets will be equal to zero.
Step 5
If the level of this ratio is below the standard value, then this indicates an insufficient equity capital of the enterprise or a too large amount of non-current assets, for example, due to a large volume of construction in progress, or a significant amount of working capital, for example, due to an increase in unclaimed inventories or a large volume of accounts receivable.
