Capital turnover is the rate at which money passes through various stages of production and circulation. The higher the rate of circulation of capital, the more profit the organization will receive, which indicates the growth of its business activity.
Instructions
Step 1
To characterize the capital turnover, calculate two main indicators: asset turnover and the duration of one turnover.
Step 2
Calculate the asset turnover by dividing the amount of revenue by the average annual value of assets.
Cob = B / A
where A is the average annual value of assets (total capital);
В - revenue for the analyzed period (year).
The found indicator will indicate the number of revolutions made by the funds invested in the property of the organization for the analyzed period. With an increase in the value of this indicator, the business activity of the company increases.
Step 3
Divide the duration of the analyzed period by the asset turnover, thereby you will find the duration of one turnover. When analyzing, it should be borne in mind that the lower the value of this indicator, the better for the organization.
Use tables for clarity.
Step 4
Calculate the coefficient of fixing current assets, which is equal to the average amount of current assets for the analyzed period, divided by the revenue of the organization.
This coefficient indicates how much working capital was spent on 1 ruble of products sold.
Step 5
Now, calculate the duration of the operating cycle, which is equal to the duration of the turnover of raw materials and materials, plus the duration of the turnover of finished products, plus the duration of the turnover of work in progress, as well as the duration of the turnover of receivables.
This indicator should be calculated over several periods. If there is a tendency towards its growth, this indicates a deterioration in the state of business activity of the company, since at the same time, capital turnover slows down. Therefore, the company has increased needs for cash, and it begins to experience financial difficulties.
Step 6
Remember that the length of the financial cycle is the length of the operating cycle minus the duration of the turnover of accounts payable.
The less this indicator is, the higher the business activity.
Step 7
The capital turnover is also influenced by the coefficient of sustainability of economic growth. This indicator is calculated by the formula:
(Chpr-D) / Sk
where Chpr is the company's net profit;
D - dividends;
Sk - equity capital.
This indicator characterizes the average growth rate of the organization's development. The higher its value, the better, as it speaks of the development of the enterprise, the expansion and growth of opportunities for increasing its business activity in subsequent periods.
