Working capital is an enterprise's assets invested in its current activities and ensuring the continuity of the production process. They include their own circulating assets - assets that are formed at the expense of the company's own capital.
Instructions
Step 1
Calculation of its own working capital is the first step in the financial analysis of each organization, since in case of their shortage, the company is forced to turn to external sources of property formation (loans and borrowings).
Step 2
There are several ways to determine the size of the company's own circulating assets. In the first case, own circulating assets are understood as the difference between the sum of sources of own funds (equity capital) and the amount of non-current assets. It is believed that for the normal security of the economic activity of the enterprise, the value of its own circulating assets should be at least 1/3 of its own capital. In other words, the organization's own capital should be sufficient for the formation of all non-current assets and about 1/3 of the circulating assets.
Step 3
Own working capital is also calculated in a different way:
SOS = SK + DO - VA, where
SK - equity capital of the enterprise, DO - long-term liabilities (liabilities), VA - non-current assets of the enterprise.
With this calculation method, it is assumed that working capital can be formed not only at the expense of equity capital, but also at the expense of long-term attracted sources (loans and borrowings).
Step 4
In addition, own current assets can be calculated as the difference between current assets and short-term liabilities (liabilities) of the enterprise.
Step 5
When analyzing the financial condition of the enterprise, the coefficient of provision with its own circulating assets is also determined. It is calculated as the ratio of the amount of own circulating assets to the sum of the organization's circulating assets. The standard value for this coefficient is 10%, i.e. at least 10% of the company's current assets must be formed at the expense of equity capital.
