Own working capital allow assessing whether the company can independently provide its operating activities, or is dependent on the funds raised. In the article, we will analyze the calculation, economic meaning and analysis of the indicator, evaluate the importance of this indicator for analysis financial condition enterprises.
The concept and economic meaning of SOS
Own working capital (SOS) is an absolute indicator reflecting the amount current assets enterprises, net of short-term liabilities.
The indicator is of particular importance for trading companies and for intermediary companies.
In English, the term working capital is used, sometimes net working capital, that is, “working capital”, which well reflects the economic meaning of own working capital. Own working capital - these are the funds that the company can use to maintain operating activities and development, because they are not burdened with any obligations. AT financial analysis SOS are closely related to the concepts of liquidity and solvency. Let's see why.
It follows from the first part of the definition that SOS consist of current assets.
- stocks of raw materials and finished products;
- unfinished production;
- accounts receivable;
- cash and cash equivalents.
That is, those assets that are the easiest to turn into money. Hence the liquidity.
The second part of the definition refers to the deduction of current liabilities.
Short term liabilities are:
- short-term loans;
- accounts payable to suppliers ;
- other debt (including personnel, budget and extrabudgetary funds etc.).
That is, these are the obligations, the maturity of which is closest. Hence solvency.
What will help: to understand what the company's need for working capital is with the existing financial model and how it can be reduced.
What will help: do right choice in favor of one or another working capital instrument through a thorough analysis of the strengths and weaknesses each of them.
What will help: in case of problems with your bank, even prompt attempts to withdraw funds stored in it do not guarantee the avoidance of monetary losses. However, there are ways to minimize them.
The formula for calculating own working capital
Own working capital can be calculated according to the balance sheet of the organization.
To do this, you need to subtract line 1500 “Current liabilities” from line 1200 “Current assets”
AT general view The formula for calculating SOS will look like this:
Own working capital \u003d Current assets - Current liabilities
In practice, sometimes a different formula for calculating own working capital is used.
Own working capital = ( Equity + long term duties) - Fixed assets
To calculate SOS according to the second formula on the balance sheet, you need to add the data in lines 1300 “Capital and reserves” and 1400 “Long-term debt” and subtract the data from line 1100 “Non-current assets” from the resulting amount. .
What will help: If the company does not have enough funds to replenish working capital and needs a loan, this solution will help prepare for a visit to the bank. It will tell you how to calculate the required amount, what bank requirements to take into account, what package of documents to prepare for it.
What will help A: If the owner is about to start a new project, get ready that he will offer to finance it with funds from the turnover of the existing company. And most of the time it's a bad idea.
What will help: optimize control in cash companies.
Analysis of own working capital
The SOS indicator is analyzed both in statics and in dynamics. Moreover, the dynamic component is extremely important, since there is no specific standard for the absolute value of SOS. SOS indicators vary greatly depending on the industry, size, growth rate of the enterprise.
In general, we can say that:
- If SOS > 0, then the company has high solvency and possibly too high liquidity than is necessary for self-financing purposes. It is possible that liquid funds are being used inefficiently. The result of overestimated SOS values will be a decrease in the capitalization of the enterprise.
- If SOS< 0, то источником покрытия non-current assets is short-term accounts payable. This is a bad sign, since if the deadline for fulfilling obligations to creditors comes, and the SOS indicator does not change, then it will be necessary either to attract new borrowed money to pay off existing liabilities, or the sale of fixed assets. A long-term negative value of SOS indicates problems with the solvency of the enterprise. Urgent action required to correct the situation
- If SOS = 0, the balance between liquidity, solvency and efficiency is maintained. But this situation rarely occurs in practice.
Companies should strive for the value of SOS to be positive, tending to zero. This will mean that the company is working efficiently, because its working capital is financed from earned profits. At the same time, the company monitors the use of liquid funds and does not allow them to "stale" on the accounts.
Analysis of the SOS structure
However, not only the absolute indicator of own working capital is analyzed, but also its structure. Depending on the stage of the cycle business activity, components of current assets can increase and decrease their share. Stocks of raw materials turn into work in progress, which in turn becomes finished products, after there is a receivable and only then liquid funds.
Since for the smooth functioning of the enterprise it is necessary to have funds for the purchase of raw materials and consumables, the value of Own working capital to cover stocks (SOS zap) comes to the fore in the analysis.
It is calculated according to the formula:
SOSzap \u003d Own working capital - Inventory - VAT on acquired values
Or for balance:
SOSzap = str 1200 - str 1500 - str 1210 - str 1220
The following conclusions can be drawn on the indicator of SOS zap:
- If SOS zap< 0, это означает, что предприятие не может самостоятельно обеспечить закупку сырья и товаров на продажу, т.е. имеет серьезные проблемы с платежеспособностью (периодическое отсутствие средств на неотложные нужды, перебои в поставках, производстве и прочее)
- If SOS zap ≥ 0, this means that the enterprise is able to finance the purchase of raw materials and consumables from internal sources.
The assessment of the sufficiency of SOS can be carried out using table 1.
Table 1. Dependence of financial stability on SOS
|
Index |
High financial stability |
Normal financial stability |
Low financial stability |
Critical situation |
|
Own working capital |
significantly >0 |
slightly ≥0 |
slightly ≥0,<0 в течение короткого срока |
<0 в течение длительного срока |
|
Own working capital for stocks |
significantly >0 |
slightly ≥0,<0 в течение короткого срока |
slightly ≥0,<0 в течение короткого срока |
<0 в течение длительного срока |
Comment: high financial stability in this case borders on inefficiency, always evaluate the balance between financial indicators.
The coefficient of security of the enterprise with its own working capital
As a relative indicator for assessing the sufficiency of own working capital at an enterprise, it is customary to calculate the SOS security ratio.
Formula for calculating Ksos:
Ksos \u003d Own working capital / Current assets
Thanks to the calculation and evaluation of Ksos, it is possible to compare similar enterprises with each other without reference to absolute amounts.
Example of calculation and analysis of own working capital
Consider excerpts from the consolidated balance sheet of the production holding for 2016–2014 (table 2).
table 2. Consolidated balance
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KOHCOLIDIPOBAHNY BALANCE |
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(in millions of rubles) |
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ASSETS: |
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BHE0000THE ASSETS |
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Total non-current assets |
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CURRENT ASSETS |
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Trade and other receivables |
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Investments in securities and other financial assets |
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Advance income tax payments |
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VAT refundable |
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Cash and cash equivalents |
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Total current assets |
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TOTAL ASSETS |
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EQUITY AND LIABILITIES |
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CAPITAL |
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Total equity |
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LONG TERM DUTIES: |
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Total non-current liabilities |
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SHORT-TERM LIABILITIES: |
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Total current liabilities |
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TOTAL EQUITY AND LIABILITIES |
We calculate the indicators of SOS, SOS zap and Ksos by years (Table 3).
Table 3. Calculation of SOS, SOS zap and Ksos
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Index |
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Own working capital, million rubles |
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Own working capital for inventories, million rubles |
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Working capital ratio |
We see that the company's own working capital takes on positive values for all three analyzed years, the SOS dynamics is directed to zero, which can also be called a positive factor.
But, at the same time, own working capital for inventories has been negative for all three years and tends to even more negative values, which clearly indicates a lack of own funds to finance operating activities. What's the matter?
Let's take a closer look at the lines of the II section of the balance sheet "Current assets". What is the dynamics of the structural elements of this section?
1. Inventories and VAT on acquired values are relatively stable, which means that production volumes do not grow and do not decrease
2. Trade and other receivables are growing slightly. What could be the reason for the growth? Let's look at the holding's revenue for the same period.
Table 4. Statement of Comprehensive Income 2012-2014
Revenue is also gradually increasing, perhaps following the rise in unit prices. This means that receivables follow revenue, and do not accumulate due to poor control:
3. Investments in securities and other financial assets have fallen sharply.
4. The funds in the current account are gradually decreasing
Section V of the balance sheet "Short-term liabilities" increased by 1.5 times in 2015 (a loan was received), in 2016 it tends to decrease.
From the information received, we can conclude that the company has chosen the right policy for optimizing inefficient current assets and is gradually leveling its financial position, but the high demand for raw materials and high debt load mean a big risk. If the external environment is favorable, then the enterprise will be able to reach normal indicators of SOS zap in a few years. If the external environment is hostile, the company will experience serious financial difficulties.
In conclusion, we note that own working capital is an important, but not the only indicator by which it is necessary to assess the financial condition of an enterprise. . It is necessary to analyze it together with other indicators of financial stability, as well as liquidity and profitability.
The amount that reflects the difference between the company's current assets and its short-term liabilities is called own working capital. The balance sheet formula for calculating own working capital is elementary and allows you to easily find out working capital. It is only important to take a responsible approach to the calculation in order to correctly determine the degree of one's own solvency.
The formula for calculating the company's own working capital
It is necessary for every organization that cares about its financial condition and regular increase in profits to regularly determine its own working capital in the balance sheet. This is necessary not only in order to give the organization financial stability, but also in order to always be able to assess the financial prospects of the company, making the necessary adjustments. Also, using the calculation of own working capital, you can assess the chances of getting rid of all existing short-term liabilities by realizing current assets.
The formula for the balance of own working capital is as follows:
[Current assets of the company] – [Current Liabilities] = [Own Working Capital]
This is a general formula that allows you to quickly obtain the necessary information and coordinate the vector of further development of the organization, depending on the data received. Also, this formula is suitable for calculating funds for a new balance. In this case, you can calculate your own working capital in the balance sheet for the line:
= [line 1200] - [line 1500]
At the same time, if you do not have any information necessary for the calculations, there is a second formula that allows you to find out the necessary data. It also fits both old and new balances:
[Own working capital] = ([Equity of the organization] + [Existing long-term liabilities]) - [Non-current assets]
[Own working capital] = ([line 1300] + [line 1530]) - [line 1100]
As an example, we can imagine a conditional company and assume that its short-term liabilities amount to 5360 rubles, and current assets equal to 7500 rubles. In this case, the own working capital of this organization will be 7500 - 5360 = 2140 rubles. This is a positive indicator, indicating that current assets exceed short-term liabilities, which means that the financial viability of the company allows it to confidently move into the future.
What indicator of own working capital is considered normal?
Using the formula for the flexibility of own working capital on the balance sheet allows you to obtain the necessary data, but it is also important to understand what kind of value can be considered good, because you can get both a positive and a negative figure.
- A positive value of the company's own working capital is considered a normal indicator, indicating that current assets exceed the amount of short-term liabilities. This indicates to the leaders of the organization that they are moving in the right direction and the company can continue its systematic development.
- If the indicator is negative, then this exposes the company not in the best light. For the most part, the negative value of own working capital, especially if it turns out to be such on a regular basis, will lead to the collapse of the company and complete bankruptcy. However, there are a few exceptions, among which are fast food restaurant chains. Companies such as McDonald's have a negative working capital ratio, but not only do they not stop their activities, but they manage to continue to develop. The thing is that in such organizations, the conversion of existing reserves into net profit occurs very quickly, due to which the negative value is completely blocked.
If you have negative data that does not have any insurance in the form of regular quick profits, then you should seriously think about it.
Further analysis of the company's own working capital
If at the first stages of the formation of the company it is enough to receive positive values of own working capital, then in the future the calculation of own working capital in the balance sheet by line should be compared with the stocks available in the company. The fact is that the available reserves are the least liquid part among all the working capital of the organization, which means that their financing should be carried out precisely at the expense of the company's own funds or, in extreme cases, at the expense of long-term borrowed funds.
The second formula for calculating own working capital. Own working capital \u003d (Equity + Long-term liabilities) - Non-current assets \u003d str. 1300 + p.1530 – p.1100 In my opinion, the first formula is easier to calculate and more convenient than the first. I recommend using it in calculations. In the English literature, this indicator according to (IFRS) will be calculated as follows: SOS (working capital) = Current Assets - Current Liabilities CA - current assets, CL - short-term accounts payable. Now, using an example, let's try to calculate our own working capital. Own working capital. Calculation on the example of OAO Uralkali To better understand everything, let's calculate own working capital for an enterprise of the domestic industry. For example, let's take OJSC Uralkali. The company belongs to the chemical and petrochemical industries.
working capital
This means, in other words, that accounts payable do not exceed their amount. According to participation in the circulation, the funds are divided into those advanced to production funds or circulation funds.
There is also a classification according to the sources of formation. So, assets are divided into borrowed, borrowed and own working capital.
In the balance sheet for the latter, both the efficiency of the use of OK and the effectiveness of production are evaluated. These assets are permanently present in the enterprise. They do not have an expiration date.
In this case, their actual presence in the enterprise is of particular importance. As a rule, the determination of SOS is carried out by subtracting current liabilities from assets.
current assets line number in the balance sheet
True, there are exceptions when successful enterprises operate with a negative value of their own working capital indicator (for example, McDonald's, where this ratio is covered by a very fast cycle of converting inventories into revenue). When analyzing the indicator of own working capital, it must be compared with the value of the company's reserves. With the normal functioning of the enterprise, the indicator should not only be positive, but also be greater than the value of the reserves.
This can be explained by the fact that reserves are the least liquid part of working capital, so they need to be financed from own funds or funds attracted for long periods.
Current assets in the balance sheet
Attention
Section II. Current assets - this section reflects the organization's funds used, as a rule, within one year. The indicators of this section of the balance sheet characterize the state of current assets, including tangible current assets, funds in settlements (accounts receivable), cash and equivalent funds.
The article “Inventories” (line 210) contains inventories, including production inventories, production costs, finished products and goods, as well as other similar reserves and costs to be reflected in the balance sheet under the relevant items. Sub-item "Raw materials, materials and other similar material assets" (line 211) - includes the actual value of the remaining materials.
Own working capital. calculation on the example of OJSC "Uralkali"
- Own working capital. economic sense
- Own working capital. Calculation formula
- What are current assets?
- Own working capital.
standard
Let's analyze the company's own working capital. This is an absolute indicator that is used to determine the Liquidity of an enterprise. In fact, this indicator determines how much the company's current assets are greater than its short-term debts. In foreign literature, own working capital is also called the working capital of an enterprise (working capital, net working capital). Own working capital. Economic meaning Let us analyze the general economic meaning of the indicator. Own current assets of the enterprise show solvency/liquidity of the enterprise.
Own working capital in the balance sheet
Such situations include the transfer of inventory for sale under a commission agreement; shipment of valuables under an exchange agreement, if a counter delivery has not been made; etc. Very often indicate the moment of transfer of ownership, different from the date of shipment, in foreign economic activity.
In all other cases, the shipped products are written off to the cost of sales in accordance with the generally established procedure. Goods shipped are valued at the cost accepted in the accounting policy for the relevant assets - finished products, goods and other material assets.
This may be the actual cost, the standard cost, the purchase price of goods, etc. The sub-item “Deferred expenses” (line 216) is intended to reflect expenses incurred in the reporting periods, but related to future reporting periods.
The formula for own working capital on the balance sheet
They allow the enterprise to execute the program in a specific period. In addition, working capital is involved in the formation of the planned and predicted economic results of the company. Classification of current assets in the balance sheet Definition 2 Current assets are displayed in the active part of the balance sheet. These are material values that are used in production and circulation. They go through three stages in which assets change their economic expression:
- money stage;
- production stage;
- commodity stage.
At the first stage, the available cash and non-cash funds are converted into production reserves. The production stage is characterized as a process of changing the qualitative properties of working capital and transferring their value to finished products. In this case, working capital is used once.
current assets
Order of the Federal Office for Bankruptcy (Insolvency) dated August 12, 1994 No. 31-r, explaining the Methodological provisions for assessing the financial position of an enterprise and establishing an unsatisfactory reporting structure, regulates the procedure in accordance with which working capital is determined. The balance sheet looks like this:
- SOS = p. 490 - p. 190.
Taking into account the changes introduced after 2011, the equation will be as follows:
- Own working capital in the balance sheet = line 1200 - line 1500.
In addition to this equation, there is another option. In accordance with it, working capital in the balance sheet is line 1300, summed up with line 1530, minus line 1100. Methodological approaches Their existence is due to the unsettled placement of working capital and the sources of its formation.
This indicates a successful financial condition of the company and allows you to pay off short-term debts to borrowers by selling their assets. The negative value of the indicator of own working capital indicates that the share of short-term loans has accumulated in the fixed capital.
This share can also be used to cover losses. This means that the organization lacks funds and is not in a favorable financial position.
Zero indicators indicate the recent opening of the company. Current assets are still not enough, borrowed funds are attracted to start the implementation of the production process or work.
It is based on the following principles:
- formation of the minimum number of current assets to ensure the continuity of the production process and circulation;
- efficient use;
- rational distribution of assets at the disposal of the enterprise according to the spheres of the production process;
- formation and replenishment of assets at the expense of own and borrowed funds in accordance with the volume of output;
- formation of financial reserves;
- control over the safety and rational use of funds.
Classification Current assets differ in the financial features of their formation. They can be gross and net. The first group includes all current assets, regardless of sources. Net include the difference between the gross aggregate of assets and the total amount of short-term (current) liabilities.
is an absolute indicator that is used to determine the Liquidity of an enterprise. In fact, this indicator determines how much the company's current assets are greater than its short-term debts. In foreign literature, own working capital is also called working capital of the enterprise(working capital, net working capital).
What is own working capital (SOS). economic sense
Let us analyze the general economic meaning of the indicator. Own current assets of the enterprise show solvency/liquidity of the enterprise. The indicator is used to assess the company's ability to pay off debts with the help of its current assets.
Own working capital. Synonyms
Synonyms of the indicator own working capital:
- own working capital,
- working capital of the enterprise,
- working capital,
- net working capital (NWC),
Own working capital. Balance calculation formula
The formula for calculating own working capital:
Own working capital \u003d Current assets - Current liabilities
What are current assets?
Current assets of the enterprise- this is the sum of working capital (raw materials, materials, components, fuel) and circulation funds (finished products, shipped, but not paid for goods), expressed in money.
Formula for calculating SOS according to the Order of the Federal Office for Insolvency (Bankruptcy) dated August 12, 1994 No. 31-r On the Methodological Provisions for Assessing the Financial Condition of an Organization and Establishing an Unsatisfactory Balance Structure is as follows:
Own working capital = line 490 - line 190
According to the new balance (after 2011), the formula will look like this:
SOS = p.1200 – p.1500
In addition to the first formula, there is another way to calculate this indicator. The second formula for calculating own working capital on the balance sheet.
Own working capital \u003d (Equity + Long-term liabilities) - Non-current assets \u003d str. 1300 + p.1530 - p.1100
In my opinion, the first formula is easier to calculate and more convenient than the first. I recommend using it in calculations.
In the English literature, this indicator according to (IFRS) will be calculated as follows:
SOS(working capital) = Current Assets – Current Liabilities
CA - current assets,
CL - short-term accounts payable.
The balance of the enterprise is taken from the official website of the company. To understand the dynamics of changes in the solvency of the enterprise, we will take 1 year for analysis. The reporting period is a quarter. One quarter in 2013 and three in 2014.
Calculation of the indicator of own working capital for OAO Uralkali
Own working capital 2013-4 = 87928663-47938587 = 39990076
Own working capital 2014-1 = 132591299-35610079 = 96981220
Own working capital 2014-2 = 115581096-34360221 = 81220875
Own working capital 2014-3 = 132981010-19458581 = 113522429
All SOS values are >0 and they also increase with time. This indicates that the solvency of OJSC Uralkali is growing.
Own working capital. standard
Own current assets can be greater than zero, equal or less than zero. As a general rule, own working capital = 0 for new businesses. If SOS > 0, then this indicates that the financial condition (solvency) of the enterprise is normal, if<0, то предприятие финансово неблагополучно, т.к. у него не хватает денежных средств для покрытия долгов.
Summary
The article analyzed the indicator "own working capital", which is one of the important indicators for assessing the solvency / liquidity of an enterprise. Do not confuse it with the ratio of own working capital, because. they are completely different things. If own working capital is greater than zero, then this indicates the financial stability of the enterprise.
Attention! The coefficient can be applied to all current assets.
K about \u003d revenue from the sale of products / average inventory balance
In other words, stakeholders will be able to see how many times the cost was returned in monetary terms using the coefficient. The average inventory balance is calculated using the balance sheet. It is necessary to summarize the balances of the inventory at the beginning and end of the year and divide them by two.
A high turnover ratio can mean two things:
- excellent efficiency of using MPZ
- depletion of stocks in the warehouse
Therefore, the company needs to build on its own marketing policy in order to understand whether high coefficients are good.
To study the use of inventories, the utilization factor of funds in circulation is used. It is calculated using the formula:
Kz \u003d balance of material assets / proceeds from the sale of products
This ratio is the opposite of turnover and is necessary to demonstrate how much inventory is accounted for by one ruble of sales.
Inventory in the balance sheet, the company has an understanding of the productivity of work and the sufficiency of resources to maintain successful economic activity.
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