2. Circulation of current assets. Turnover indicators

Circulating assets are in constant movement. Capital turnover covers three stages: procurement, production and marketing.

Any business starts with some sum of cash which are put into a certain amount of resources for manufacturing (production).

At the stage of manufacturing resources are embodied in goods, work or services. The result of this stage is the transition of circulating capital from the production form into commodity.

After the realization of the finished product the circulating capital from the commodity form again passes into monetary one. Volumes of the initial sum of money and proceeds from the realization of production (work, services) do not coincide in size. The received financial result of business (profit or the loss) explains the reasons of discrepancy.

The time of full turnover of circulating assets is the time (period) of circulating assets revolution.

Time (duration) of circulating assets revolution represents one of turnover indices. Turnover coefficient is the other turnover index.

Turnover coefficient is the amount of revolutions which is made by circulating assets during a certain period; turnover coefficient is calculated according to the following formula:

K_tno = P_real /CA_aver ,

where P_real - volume of realized production during the period under consideration; CA_aver - the average sum of circulating assets for the same period.

Time (duration) of a revolution is usually called turnover in days. This index is defined according to the following formula:

T = D / K_tno ,

where D – the number of days in the given period (360, 90, 30); K_tno - turnover coefficient.

The unfolded expression for the turnover index is as follows: T = (D*CA_aver) / P_real .

At each stage of circulating assets turnover it is possible to define specific turnover of each element of circulating assets:

Ti = (D*CA_{aver i}) / P_{real .}

It is possible to calculate specific turnover indices according to a particular revolution. A particular (special) revolution for material stocks is their consumption for manufacturing, for work-in-process is taking goods into warehouses, for finished goods is shipment, for factory shipments is its realization.

Average sums of circulating assets for the period, which are used when calculating turnover indices, are defined with the help of the average chronological formula. The average annual sum (the average annual residues of circulating assets) is found as arithmetical mean of four quarterly sums:

CA_aver.ann.= (CA_Iquart+CA_IIquart+ CA_IIIquart +CA_IYquart) /4

The average quarterly sum is calculated as the arithmetical mean of three average monthly values:

CA_averquart = (CA_1mon + CA_2mon + CA_3mon) /3

The expression according to which the monthly average sum is calculated has the following form:

CA_avermon = (CA_monbeg + CA_monend) / 2

The sum of circulating assets which is at the disposal of the enterprise should be large enough for the circulation process not to be interrupted. At the same time, availability of circulating assets surpluses has the negative effect on the results of the enterprise activity.