Working Capital Of The Enterprise

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2020-07-03 03:18:06

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Working capital of the enterprise – those funds that are advanced to working capital funds (scope of production), and treatment (sphere of circulation). In turn revolving funds consist of inventories, work in progress and semi-finished products of own production and costs future period.

Any enterprise engaged in production activities, has the working capital necessary to ensure continuity of the production process and implementation of products.

The financial resources of the enterprise are temporarily in stocks, commodity and material valuables, securities, receivables, cash, current liabilities and within one production cycle (or calendar year) can be paid in cash.

 

Working capital of the enterprise the contents include the items of work involved in the production process, with the ultimate goal of production. Their absence or deficiency can lead to interruptions or suspension of production.

 

Unlike fixed assets working capital are in constant motion. They make a circuit to ensure continuity of production processes.

Current assets are 3 stages of the circuit: 1 – cash, 2 – production, 3  product.

 

In the first stage using the working capital is the financing of inventory of production, thereby ensuring the sustainability of technological processes. Then (second stage) working capital goes directly into production with the goal of advancing the semi-finished products, work in process and finished goods and deferred expenses. In the third stage of the circuit these funds come in the sphere of circulation and the result of the sale of products again acquire cash.

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All these three stages are interrelated. The right balance of stages accelerates capital turnover and increases work efficiency. The monetary difference between the amounts of funds on the first and last stage of the turnover shows financial performance of the company.

 

The Efficiency of an enterprise depends on the size and structure of working capital. It is important to determine the optimum need for them to be able to get profit with minimum costs. Undersize of working capital may lead to instability of the financial condition of the company and the overstatement – to their irrational use.

 

Formed the working capital of the enterprise initially of the statutory Fund. The size of their company sets its own level requirement, which means that they are minimal, but sufficient production volume.

 

The Largest share is working capital directed for maintenance of production processes and the initial stages of sales. This part of the funds is subject to special attention and constant monitoring of financial services companies.

Working capital is resumed with some regularity.

According to the source of working capital companies are divided into the following groups: own, extra and involved.

The working capital of enterprises play the main role in the circulation of funds and the protection of property and operational independence of the enterprise. This part of the funds formed at the stage of establishment of enterprises (authorized capital). Further they can grow at the expense of profits and stable liabilities.

Borrowings are to reduce the overall needs of the economy in the media, as well as to promote their effectiveness. These funds are financed through short-term Bank loans.

May Also generate funds through fundraising  (foreign investment).

All of the group's working capital must be properly correlated with each other to ensure the financial independence of the company.

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