Average annual turnover refers to the rate at which cash flows through the various stages of production. At the same time, the higher the rate of circulation of working capital, the more profit the company will receive.
Instructions
Step 1
Calculate the asset turnover and then the duration of one turnover. In turn, in order to calculate the asset turnover, divide the amount of revenue by the amount of the average annual value of assets: Kob = B / A, where A is the indicator of the average annual value of assets (the sum of all capital); B is the value of revenue for the analyzed period (for example, The resulting value will show you how many turnovers are produced by the funds invested in the assets (property) of the enterprise for the year. With an increase in the value of this indicator, the business activity of the company increases.
Step 2
Divide the duration of the period under consideration by the asset turnover ratio, thus you will determine the duration of one turnover. In this calculation, it should be borne in mind that the smaller the sum of this value, the better for the firm.
Step 3
Calculate the coefficient of consolidation of assets involved in the turnover. It is equal to the average sum of all current assets for the period under review, divided by the indicator of the organization's revenue. This coefficient will be able to show you how much working capital was spent on one ruble of goods sold.
Step 4
Determine the duration of one operating cycle. It is equal to the duration of the turnover of materials and raw materials + the duration of the turnover of all finished products + the turnover of work in progress + the duration of the turnover of the amount of receivables. Such an indicator must be calculated over several periods. In the event that its growth is noticed, this will indicate a deterioration in the company's position in the field of its business activity. At the same time, a slowdown in capital turnover is possible.
Step 5
Find the length of one financial cycle. To do this, subtract from the duration of the operating cycle the duration of one turnover of accounts payable. In turn, the lower the value of this indicator, the greater the business activity of the organization.
