current assets- one of the resources without which the commercial activity of the enterprise is impossible. Calculation and analysis of indicators turnover current assets characterizing the efficiency of managing this resource will be considered in this article.
Current assets, their composition and indicators for analysis
A systematic analysis of the commercial activities of an enterprise as an element of effective management is based on the calculation of a number of indicators and the normalization of their values. Comparison of actual and standard indicators makes it possible to identify various patterns in business processes, eliminate risks, and make timely and correct management decisions.
The main source of information for calculating analytical coefficients is financial statements.
A significant part of the calculations is based on information about the movement and balances current assets.
To current assets include the following types of company assets:
- stocks, including raw materials, materials, goods for resale and goods shipped, finished products, prepaid expenses;
- VAT on purchased assets;
- accounts receivable;
- financial investments;
- cash.
In accordance with PBU 4/99 "Accounting statements of the organization" data on current assets enterprises are contained in section II of the balance sheet. Often in the literature you can find the terms "working capital" or "funds in circulation."
Value current assets used in the calculation of the following indicators:
- profitability;
- liquidity;
- financial sustainability.
Let's take a closer look at analysis turnover of current assets, which is one of the aspects characterizing the business activity of the enterprise.
Why do you need a current asset turnover analysis?
The dynamics of indicators characterizing the turnover of working capital is necessarily disclosed in the information accompanying financial statements (clauses 31, 39 PBU 4/99), as part of a group of coefficients that allow interested users of financial statements to assess the financial stability, liquidity and business activity of the enterprise. current assets and their fair assessment are carefully checked in the process of auditing financial statements.
Competent management of funds in circulation allows you to effectively attract credit sources to finance current activities. To assess the creditworthiness of an enterprise, banks use well-known indicators for assessing financial and economic activities. Based on the ranking of these indicators, an enterprise is assigned a certain rating, on which credit conditions depend, including the credit rate, the amount of collateral and the loan term. current assets may also serve as collateral for loan obligations.
The presence of a system of analytical coefficients greatly facilitates the dialogue with the tax authorities, if it is necessary to explain the causes of seasonal losses. current assets may cause an excess of VAT deductions over the amount of VAT accrued.
Consider the procedure for calculating turnover ratios.
Current assets turnover ratio
The turnover ratio shows how many times in the period under review current assets converted into cash and vice versa. The coefficient is calculated by the formula:
Kob \u003d B / SSOA,
where: Cob - turnover ratio of current assets ;
B - revenue for the year or another analyzed period;
SSOA - average cost current assets for the analysis period.
Attention should be paid to the calculation of the average cost current assets. For the purposes of obtaining the most correct value of the turnover ratio, it makes sense to divide the analyzed period into equal intervals and calculate the average cost using the following formula:
SCOA \u003d (COA0 / 2 + COA1 + COAn / 2) / (n - 1),
where: SSOA - average cost current assets for the period of analysis;
SOA0 - the balance of funds in circulation at the beginning of the analyzed period;
СОА1, СОАn - the balance of funds in circulation at the end of each equal interval of the analyzed period;
n is the number of equal time intervals in the analyzed period.
This method of calculating the average value of funds in circulation will take into account seasonal fluctuations in balances, as well as the influence of external and internal factors.
Nevertheless, the value of the calculated turnover ratio provides only general information about the state of business activity of the enterprise and is of no value for management without analyzing its dynamics, comparing it with standard indicators.
Turnover of current assets: formula in days
The most informative indicator from the point of view of managing the commercial activities of an enterprise is the turnover of current assets in days or other units of time (weeks, months). This indicator can be calculated using the formula:
About \u003d K_dn / Cob,
where: About - turnover in days;
K_dn - the number of days in the analysis period;
Cob - turnover ratio of current assets.
The normative values of turnover in days and the turnover ratio are set by the enterprise independently based on the analysis of a combination of factors, such as the terms of contracts, industry specifics, region of activity, etc.
current assets have a different structure depending on the type of activity. For example, if an enterprise provides services and does not have stocks, the focus in the analysis of current assets turnover will be on receivables. Effective management of this type of funds in circulation will enable the enterprise to release the funds frozen in receivables and thereby improve the financial position of the enterprise.
How to set the standard for the turnover of receivables? It is necessary to compare the turnover of receivables with the turnover of accounts payable. The economic effect of managing receivables will be the higher, the greater the excess in days of accounts payable turnover over receivables turnover.
An analysis of the dynamics of receivables turnover indicators will make it possible to identify negative trends in the event that uncollectible debts appear in the receivables.
Results
current assets Enterprises are a rapidly changing resource that reacts most sharply to changes in the external and internal business environment. Turnover indicators current assets are an important indicator of the effectiveness of the commercial activities of the enterprise.
Turnover analysis is one of the leading areas of analytical study of the financial activities of an organization. Based on the results of the analysis, assessments of business activity and the effectiveness of asset and/or capital asset management are made.
Today, the analysis of working capital turnover raises a lot of controversy between practical economists and theoretical economists. This is the most vulnerable point in the entire methodology of financial analysis of the organization's activities.
What characterizes the turnover analysis
The main purpose for which it is carried out is to assess whether the enterprise is able to make a profit by completing the “money-goods-money” turnover. After the necessary calculations, the conditions for material supply, settlements with suppliers and buyers, marketing of manufactured products, etc., become clear.
So what is turnover?
This is an economic value that characterizes a certain time period during which the complete circulation of money and goods takes place, or the number of these circulations for a given time period.
Thus, the turnover ratio, the formula of which is given below, is equal to three (the analyzed period is a year). This means that the company earns money for the year of work the second more than the value of its assets (i.e., they turn over three times in a year).
The calculations are simple:
K about \u003d sales revenue / average asset value.
Often it is required to find out the number of days for which one revolution passes. To do this, the number of days (365) is divided by the turnover ratio for the analyzed year.
Commonly used turnover ratios
They are necessary to analyze the business activity of the organization. Turnover indicators show the intensity of the use of liabilities or certain assets (the so-called turnover rate).
So, when analyzing turnover, the following turnover ratios are used:
Enterprise equity,
working capital assets,
full assets,
Stocks,
debts to creditors,
Accounts receivable.
The higher the estimated turnover ratio of total assets, the more intensively they work and the higher the indicator of business activity of the enterprise. Industry specifics do not always have a positive effect on turnover. So, in trade organizations through which large amounts of money pass, the turnover will be high, while at capital-intensive enterprises it will be much lower.
When comparing the turnover ratios of two similar enterprises belonging to the same industry, one can see a difference, sometimes significant, in the effectiveness of asset management.
If the analysis shows a large receivables turnover ratio, then there is reason to talk about a significant efficiency in the collection of payments.
This coefficient characterizes the speed of movement of working capital from the moment of receipt of payment for material assets and ending with the return of funds for goods (services) sold to bank accounts. The amount of working capital is the difference between the total amount of working capital and the balance of cash in the bank on the accounts of the enterprise.
In the case of an increase in the turnover rate with the same volume of goods (services) sold, the organization uses smaller amounts of working capital. From this we can conclude that material and financial resources will be used more efficiently. Thus, the turnover ratio of working capital indicates the totality of business processes, such as: a decrease in capital intensity, an increase in productivity growth, etc.
Factors affecting the acceleration of turnover of working capital
These include:
Reducing the total time spent on the technological cycle,
Improvement of technologies and production process,
Improving the supply and marketing of goods,
Transparent payment and settlement relations.
money cycle
Or, as it is also called, working capital is a temporary period of cash turnover. Its beginning is the moment of acquiring labor, materials, raw materials, etc. Its end is the receipt of money for goods sold or services provided. The value of this period shows how effective working capital management is.
A short cash cycle (a positive characteristic of the organization's activities) makes it possible to quickly return the funds invested in current assets. Many companies with strong market positions, after analyzing the turnover, get a negative working capital ratio. This is explained, for example, by the fact that such organizations are able to impose their conditions on both suppliers (receiving various payment deferrals) and buyers (significantly reducing the payment period for delivered goods (services)).
inventory turnover
This is the process of replacement and / or full (partial) renewal of stocks. It passes through the transfer of material assets (that is, the capital invested in them) from a group of reserves into the production and / or sale process. Inventory turnover analysis makes it clear how many times during the billing period the balance of stocks was used.
Inexperienced managers create excess stocks for reinsurance, not thinking about the fact that this excess leads to a "freeze" of funds, overspending and lower profits.
Economists advise avoiding such low-turnover stockpiles. And instead, by accelerating the turnover of goods (services), free up resources.
Inventory turnover ratio is one of the important criteria for evaluating the activity of an enterprise
If the calculations show a ratio that is too high (compared to averages or the previous period), then this may indicate a significant shortage of stocks. On the contrary, stocks of goods are not in demand or are very large.
To obtain a description of the mobility of funds invested in the creation of stocks, it is possible only by calculating the inventory turnover ratio. And the higher the business activity of the organization, the faster the money is returned in the form of proceeds from the sale of goods (services) to the accounts of the enterprise.
There are no generally accepted norms for the turnover ratio of funds. They are analyzed within the framework of one industry, and the ideal option is in the dynamics of a single enterprise. Even the slightest drop in this ratio is indicative of overstocking, poor warehouse management, or a buildup of unusable or obsolete materials. On the other hand, this high indicator does not always characterize well the business activity of the enterprise. Sometimes this indicates the depletion of stocks, which can cause disruptions in the process.
Affects the inventory turnover and the activity of the marketing department of the organization, since a high profitability of sales entails a low turnover ratio.
Accounts receivable turnover
This ratio characterizes the rate of repayment of receivables, that is, it shows how quickly the organization receives payment for goods (services) sold.
It is calculated for a single period, most often for a year. And shows how many times the organization received payments for products in the amount of the average balance of the debt. It also characterizes the policy of selling on credit and the effectiveness of working with buyers, that is, how effectively receivables are collected.
The receivables turnover ratio has no standards and norms, since it depends on the industry and technological features of production. But in any case, the higher it is, the faster the receivables are covered. At the same time, the efficiency of the enterprise is not always accompanied by a high turnover. For example, sales of products on credit give a high balance of receivables, while the indicator of its turnover is low. 
Accounts payable turnover
This coefficient shows the relationship between the amount of money that needs to be paid to creditors (suppliers) by the agreed date and the amount spent on purchases or on the purchase of goods (services). The calculation of the turnover of accounts payable makes it clear how many times during the analyzed period its average value was repaid.
Financial stability and solvency decrease with a high share of accounts payable. While it also makes it possible for the entire time of its existence to use "free" money.
The calculation is simple
The benefit is calculated as follows: the difference between the amount of interest on a loan equal to the amount of debt (that is, a hypothetically taken loan) for the time that it is listed on the balance sheet of the organization, and the amount of accounts payable itself.
A positive factor in the activity of the enterprise is the excess of the accounts receivable ratio over the accounts payable turnover ratio. Lenders prefer a higher turnover ratio, but it is beneficial for the company to keep this ratio at a lower bar. After all, unpaid amounts of accounts payable are a free source for financing the current activities of the organization.
Resource transfer, or asset turnover
It makes it possible to calculate the number of turnovers of capital for a particular period. This turnover ratio, the formula exists in two versions, characterizes the use of all the assets of the organization, regardless of the sources of their receipt. It is also important that, only by determining the resource return coefficient, one can see how many rubles of benefit fall on each ruble invested in assets.
The asset turnover ratio is equal to the quotient of revenue divided by the value of assets on average for the year. If you need to calculate the turnover in days, then the number of days in a year must be divided by the asset turnover ratio.
The leading indicators for this category of turnover are the period and turnover rate. The latter is the number of turnovers of the organization's capital for a certain period of time. Under this interval understand the average period for which there is a return of funds invested in the production of goods or services.
Asset turnover analysis is not based on any norms. But the fact that in capital-intensive industries the turnover ratio is much lower than, for example, in the service sector, is definitely understandable.
Low turnover may indicate insufficient efficiency in working with assets. Do not forget that the rate of return on sales also affect this category of turnover. Thus, high profitability entails a decrease in asset turnover. And vice versa.
Equity turnover
Calculated to determine the rate of equity capital of the organization for a particular period.
The turnover of the capital of the organization's own funds is intended to characterize various aspects of the financial activity of the enterprise. For example, from an economic point of view, this coefficient characterizes the activity of the cash turnover of invested capital, from a financial point of view - the rate of one turnover of invested funds, and from a commercial point of view - surplus or insufficiency of sales.
If this indicator shows a significant excess of the level of sales of goods (services) over the invested funds, then, as a result, an increase in credit resources will begin, which, in turn, allows reaching the limit beyond which the activity of creditors increases. In this case, the ratio of liabilities to equity increases and credit risk increases. And this entails the inability to pay these obligations.
The low turnover of capital of own funds indicates their insufficient investment in the production process.
The success of any enterprise directly depends on how efficiently working capital is spent. It is very important to pay great attention to the economic side of the revolving fund.
It is not difficult to conduct such studies and it will help to determine whether there are problems in the enterprise and solve them, thereby preventing losses.
Plays a very important role turnover ratio. It can be used to characterize how effective the turnover of assets is.
The necessary data for calculating such a coefficient are taken from the balance sheet of the accounting department.
The concept of the turnover ratio of working capital is the ratio of the amount that was received from the sale of products.
Working capital is a certain amount of money that is invested in order to create production turnover funds. All this allows the firm or company to work without interruption.
Where to get indicators for calculation
Of course, it must be remembered that all these data must be used for the period for which the calculation is carried out. Usually, the calculation of all indicators is carried out for the year, so all the necessary information is taken from the annual report on accounting.
The volume of all products already sold is indicated in the RP formula. This volume is located in the 10th line of the report on losses and profits. It is in this answer that you can clearly see the entire net proceeds from the total sale for a certain period.
It is important to subtract the average cost of all means of circulation. To do this, it is necessary to divide all the amounts of the turnover value from the beginning to the end of the desired period.
The necessary data in order to make the calculation are taken from the balance sheet, exactly from line 290. It is in it that the totals of all current assets are indicated.
What do the coefficients depend on?
Each industry has its own indicator. Most of all indicator in trade branches. Other industries, such as cultural or scientific organizations, do not have a high coefficient level. Therefore, it is impossible to compare all enterprises, because they differ in their type of activity.
The coefficient depends on the following factors:
- A variety of raw materials that are used in the industry;
- Volume and rate of production;
- Cycle duration;
- Qualification of all employees of the enterprise;
- Type of activity of the enterprise;
Factor calculations
The coefficient allows you to find out how much revenue is obtained from the sale of all goods or products and how much comes from this per ruble of the working capital. This calculation uses the formula
Kob \u003d RP / CO
Here, the turnover ratio is defined as Cob.
RP is the volume of all products that were sold for the period, the report of which is carried out.
CO - denotes the average value of the means of circulation for the desired period.
Analysis of current assets ratio
In the case when the asset ratio is greater than 1, this indicates that the company is generating income. If the coefficient exceeds 1.36, such an enterprise is extremely profitable and brings a very good profit.
It is also important to observe the dynamics of the coefficient changes. Everything looks more clearly in tables, according to which you can follow all the changes and draw the appropriate conclusions.
Possible reasons for lowering the turnover ratio
If the dynamics of the coefficient falls, this is an alarming sign, and the company's management should seriously think about how to increase it and what needs to be done for this.
Often the reason for the low rate is excessive accumulation of material values. In this case, you need to reduce the volume of goods, and all the savings should be invested in production.
An important point is the introduction of new equipment and technologies, the desire to improve all production and the work of the enterprise.
Reasons for a low ratio can be anything. For example, it is very important to monitor the qualifications of employees and their level of performance, for the condition of the equipment, so that there are no breakdowns and stagnation of production.
Calculation of the turnover ratio of working capital
It is impossible to imagine the effective and fruitful work of an enterprise without the correct use of working capital.
Working capital is always different, depending on the time of year, on the standard of living and activity. If resources are used wisely, then the activity of the enterprise will be successful and fruitful.
How competently and correctly the capital is used can be found with the help of coefficients. Some of them help to analyze the liquidity and speed of the organization. The turnover rate is very important. He designates as Cob.
Indicators required for calculation
The turnover ratio is determined using the data that is in the financial report of the enterprise, namely in the first two lines of the accounting report.
It is necessary to calculate the volume as revenue for a certain period, which is taken from the income statement.
We need numbers that are written in the line of the report, which indicates the amount that was received from all sales or sales of services and goods.
The average residual is subtracted from the amount located in the second column of the balance sheet for accounting using the formula:
F ob.sr \u003d F1 + F0 / 2
F0 and F1 are two values of the turnover of the enterprise's funds for the present and the past period.
Formula and calculation
The turnover ratio indicates the number of turnovers of working capital for a certain period of time. It can be calculated using the following formula:
Kob \u003d Qp / Fob.av.
That is, it turns out in such a way that all the funds that the organization invests in the development of its business are returned back after a certain time and in the form of a ready-made product, which is then sold and makes a monetary profit.
In addition to the coefficient denoting turnover in economic analysis, there are other designations:
- Duration of one revolution Tob;
- Profitability Rob.sr;
Turnover ratio analysis
Before analyzing the turnover ratio, it is necessary to understand what the working capital of an enterprise is. This is the amount of assets that have a useful life of less than a year.
These include:
- Production at an unfinished stage;
- Already finished product and goods;
- stock;
- Material resources;
- Accounts receivable;
It is possible to reduce stocks if it is more economical to use all resources and with an increase in losses in production.
Reasons for the decrease in the turnover ratio
The decrease in the coefficient can occur for several reasons, emanating from internal and external factors.
Let's say the economy has deteriorated in the country and people began to buy less certain goods, or when new models of equipment appear, the older ones will no longer be sold. This is an external reason.
Internal reasons:
- Improper management of funds;
- Erroneous actions in logistics and marketing;
- Debts of the organization;
- The use of old technologies in production;
The conclusion suggests that all these reasons appear due to errors within the company and insufficient qualifications of employees.
If the company has moved to a new, more modernized level and new methods, the coefficient may also decrease.
Calculations using the example
For example, there is an organization called Omega. Having made an analysis for 2012, the result showed that the income in that year was 100,000 rubles. and the value of all working capital is 35,000 rubles. and in 2013 45,000 rubles.
Let's look at the formula:
Cob \u003d 100,000 rubles / (35 + 45 / 2) \u003d 2.5
Using the result of this formula, we calculate the annual turnover cycle of the enterprise:
Tob \u003d 360 / 2.5 \u003d 144 days
It turns out that the production cycle of the Omega organization is 144 days.
Turnover of current assets
Definition
Using the indicator of current assets, you can find out how many times over a certain period the organization used the average balance of all available funds.
According to the balance sheet, current assets are:
- Stocks;
- Material resources;
- Short-term debt on debtors of purchased goods, together with VAT.
Formula (calculation)
Current assets are calculated by a special formula:
Turnover of turnover = Revenue / turnover assets
For the formula, current assets should be taken as the average annual balance.
Normal value
Turnover indicators do not have any general norms. They are analyzed in dynamics or in comparison with the same sectoral enterprises. A very low ratio indicates that a very large accumulation of stocks in the enterprise.
Asset turnover ratio on the example of OJSC Rostelecom
The asset turnover ratio is in the group of indicators of business activity and shows how intensively the organization's resources were used.
The economic meaning of the asset turnover ratio
The asset turnover ratio helps to determine how effective the organization's activities are not from the profit side, but from the use of assets in production.
What is an integral part of current assets?
Working capital is:
- Any stock;
- Material resources, namely cash;
- Investments for a short period;
- Short-term accounts receivable;
What factors determine the value of the turnover asset ratio?
The turnover asset ratio depends on several factors:
- duration of production;
- The level of qualification of the personnel of the organization;
- Organization's activities;
- production rates;
The largest coefficient in enterprises where they are engaged in trade. Its lowest level is in scientific enterprises. Therefore, it is necessary to compare organizations by their industry.
Synonyms for the value of the asset turnover ratio
Such a value as the asset turnover ratio has synonyms.
The turnover ratio can be functioning capital or mobile funds.
Knowing the synonyms of the coefficient is useful, since there are various literary sources, and everywhere the coefficient is called differently.
But due to the fact that many economists call coefficients in their own way, there is no one specific definition and term for coefficient.
Asset turnover ratio
The coefficient is never negative. Its low level indicates that the company has accumulated an excessive amount of working capital.
To make the coefficient higher, you need to sell what people need and at the same time the product must be quality and affordable. This raises the competitiveness. At the same time, the production cycle should be lower.
Analysis of the ratio using the dynamics will determine its level and find out whether the economics of the organization is progressing well.
Noskova Elena
I have been in the accounting profession for 15 years. She worked as a chief accountant in a group of companies. I have experience in passing inspections, obtaining loans. Familiar with the areas of production, trade, services, construction.
Turnover ratios or business activity of the enterprise- show the effectiveness of the use by the enterprise (organization) of its capital and funds. These ratios show the rate of capital turnover and its transformation into cash. Turnover ratios directly determine the degree of solvency of the enterprise (the ability to pay its obligations), financial stability and financial risk. Turnover ratios in their calculations do not use net profit as profitability ratios, but proceeds from the sale of goods and services. This allows you to evaluate not the profitability of the enterprise, but its intensity and turnover rate of resources, assets, stocks, cash, receivables and payables.
This article will consider the main enterprise turnover ratios most commonly used in financial practice, such as:
- Asset turnover ratio
- Equity turnover ratio
- Current assets turnover ratio
- Inventory and asset cost turnover ratio
- Accounts receivable turnover ratio
- Accounts payable turnover ratio
- Cash turnover ratio
The asset turnover ratio is the ratio of revenue from products sold to all assets of the enterprise. This ratio shows the efficiency of the use of assets and shows the number of turnovers of the entire capital for the period and the amount of money that a unit of assets brought.
There are no normative values for the asset turnover ratio, so it is necessary to directly investigate the dynamics of this indicator change over time for one enterprise or industry. In capital-intensive industries, asset turnover will be lower than in the areas of trade. The higher the asset turnover ratio, the more efficient the use of assets. This indicator differs from the return on assets indicators in that it does not show the profitability of the enterprise, but characterizes the intensity of turnover. Therefore, in the turnover formulas, not net profit is used, but the company's revenue for the reporting period. The formula for calculating the asset turnover ratio is as follows:
Asset turnover ratio= Sales revenue / Average assets for the period
Asset turnover ratio\u003d p. 10 Form No. 2 / (0.5 * (p. 300 beginning of the year + p. 300 end of the year))
The equity turnover ratio is calculated as the ratio of the volume of product sales (revenue) to the average annual cost of equity. The equity turnover ratio shows the activity and rate of use of equity by the enterprise.
There are no normative values of the equity turnover ratio, it is necessary to investigate the dynamics of this indicator for one enterprise. The formula for calculating the equity turnover ratio is as follows:
Equity turnover ratio= Revenue from product sales / Average cost of equity for the period
Equity turnover ratio= line 10 Form No. 2 / 0.5 * (line 490 at the beginning of the year + line 490 at the end of the year)
The turnover ratio of current assets shows the activity of use and the speed of circulation of current assets. This coefficient characterizes how much current assets made a full turnover in one year and how much revenue they brought. Current assets include accounts receivable, cash, reserves and deferred expenses, short-term financial investments. The higher the value of this ratio, the more efficient the enterprise. The formula for calculating the turnover ratio of current assets:
Current assets turnover ratio= Net proceeds from product sales / Average annual value of current assets
Current assets turnover ratio= line 10 Form No. 2 / 0.5 (line 290 at the beginning of the year + line 290 at the end of the year)
The inventory turnover and asset cost ratio shows the intensity of inventory use and the rate of turnover.
There are no standard values for the turnover ratio. This indicator must be analyzed in dynamics for a particular enterprise or industry. A decrease in the turnover ratio indicates that the accumulation of excess stocks in the warehouses of the enterprise. The higher the inventory turnover ratio and asset costs, the higher the activity of the enterprise in creating cash. Excessively high inventory turnover and asset costs are indicative of severe inventory shortages and rapid depletion. The formula for calculating the inventory turnover ratio and asset costs:
Inventory and asset cost turnover ratio= Net revenue from product sales / Average annual inventory value
Inventory and asset cost turnover ratio\u003d p. 10 Form No. 2 / 0.5 * [(p. 210 + p. 220) at the beginning of the year + (p. 210 + p. 220) at the end of the year]
The accounts receivable turnover ratio shows the rate of turnover of accounts receivable. There are no clear standard values for the receivables turnover ratio, they vary depending on the industry, but the higher the ratio, the faster consumers repay their obligations, which is beneficial for the enterprise. The formula for calculating the receivables turnover ratio is as follows:
Accounts receivable turnover ratio= Revenue from the sale of goods and services / Average annual receivables
Accounts receivable turnover ratio\u003d p. 10 Form No. 2 / 0.5 * [(p. 230 + p. 240) at the beginning of the year + (p. 230 + p. 240) at the end of the year]
The accounts payable turnover ratio shows the speed and intensity of repayment of the company's obligations to borrowers and characterizes the number of turnovers of repayment of accounts payable for the reporting period, which, as a rule, is one year. The normative value of the accounts payable turnover ratio depends on the industry and the nature of the enterprise. The formula for calculating the accounts payable turnover ratio is as follows:
Accounts payable turnover ratio= Revenue from the sale of goods and services / Average accounts payable
Accounts payable turnover ratio= line 10 Form No. 2 / 0.5 * (line 620 at the beginning of the year + line 620 at the end of the year)
The cash turnover ratio shows the intensity of the use of the company's cash and shows the number of turnovers for the reporting period. The formula for calculating the cash turnover ratio is as follows:
Cash turnover ratio= Revenue from the sale of goods and services / Average amount of cash
Cash turnover ratio= line 10 Form No. 2 / 0.5 * (line 260 at the beginning of the year + line 260 at the end of the year)
findings
Turnover ratios are an important indicator of the efficiency of the use of resources by an enterprise. These indicators, in contrast to profitability indicators, show the turnover rate and intensity, because in their calculation formulas they use revenue values (rather than net profit, as in profitability ratios). Turnover ratios are examined in dynamics to analyze the direction and assess the nature of their change for one enterprise, a group of similar enterprises and one industry.
If there is a product, then this is certainly good, but only as long as it does not become too much. The warehouse is full of goods - we pay taxes on stocks, but it is sold too slowly. Then we say - the turnover of goods is low. But if it is very high, it means that the product is being sold quickly, too quickly. Then the buyer, having come to us, runs the risk of not finding the right product. The answer lies in the ability to analyze and plan inventory turnover.
Concepts with which we operate
Each manager operates with terms such as "inventory", "turnover", "leaving", "turnover", "turnover ratio", etc. However, when using economic and mathematical methods of analysis, confusion often arises in these concepts. As you know, the exact sciences require precise definitions. Let's try to understand the terminology before we consider the concept of turnover in detail.
GOODS - products that are sold and bought; it is part of the inventory. A service can also be a product if we demand money from our buyer for it (delivery, packaging, payment for mobile communications by cards, etc.).
INVENTORIES is a list of assets (goods, services) of a company suitable for sale. If you are a wholesaler and retailer, your inventory is not only the products on the shelves, but also the goods that are in stock, delivered, held, or received—anything that can be sold.
If we are talking about INVENTORY, then it is goods in transit, goods in stock and goods receivable (because you retain ownership of it until it is paid for by the buyer, and theoretically you can return it to to your warehouse for later sale). BUT: to calculate the turnover, goods in transit and goods in receivables are not taken into account - only the goods present in our warehouse are important to us.
AVERAGE COMMODITY STOCK (ТЗav) - the value that we need for our own analysis. TZav for the period is calculated by formula 1.
Example
The calculation of the average commodity stock (ТЗav) for the year for a company trading, for example, in small household chemicals and household goods, is given in Table. one.
The average TK for 12 months will be $51,066.
There is also a simplified formula for calculating average balances:
TZav" = (balances at the beginning of the period + balances at the end of the period) / 2.
In the above example, TZav" will be equal to (45,880 + 53,878) / 2 = $ 49,879. However, when calculating the turnover, it is still better to use the first formula (it is also called the average chronological moment series) - it is more accurate.
TABLE 1. Calculation of the average inventory
COMMODITY TURNOVER (T) - the volume of sales of goods and the provision of services in monetary terms for a certain period of time. The turnover is calculated in purchase prices or cost prices. For example, we say: "The turnover of the store in December amounted to 40,000 rubles." This means that in December we sold goods worth 39,000 rubles and also provided home delivery services for our customers worth 1,000 rubles.
turnover and turnover ratio
The financial success of the company, the indicator of its liquidity and solvency directly depends on how quickly the funds invested in stocks turn into real money.
As an indicator of the liquidity of stocks, the INVENTORY TURNOVER RATIO is used, which is most often referred to simply as turnover.
This coefficient can be calculated according to different parameters (by cost, by quantity) and for different periods (month, year), for one product or for categories.
There are several types of inventory turnover:
- the turnover of each item of goods in quantitative terms (by pieces, by volume, by weight, etc.);
- turnover of each item of goods by value;
- turnover of a set of items or the entire stock in quantitative terms;
- turnover of a set of items or the entire inventory by value.
For us, two indicators will be relevant - the turnover in days, as well as the number of revolutions of the goods.
INVENTORY TURNOVER (RO) or INVENTORY TURNOVER SPEED. The speed with which the product turns around (that is, it comes to the warehouse and leaves it) is an indicator that characterizes the effectiveness of the interaction between purchases and sales. There is also the term "COMMODITY TURNOVER", which in this case is one and the same.
The turnover is calculated according to the classical formula:
(Balance of goods at the beginning of the month)/(Turnover for the month)
But for increased accuracy and correct calculation, instead of the balance of goods at the beginning of the period, we will use the average inventory (TSav)
Let's note THREE IMPORTANT POINTS before proceeding to the calculation of turnover.
1. If the company does not have stocks, then it makes no sense to calculate the turnover: for example, we trade in services (we maintain a beauty salon or give consultations to the public) or we deliver to the buyer from the supplier’s warehouse, bypassing our own warehouse (for example, an online bookstore).
2. If we unexpectedly implemented some major project and sold an unusually large batch of goods under the buyer's order. For example, the company won a tender for the supply of finishing materials to a shopping center under construction nearby and brought a large batch of sanitary ware to the warehouse for this project. In this case, the goods delivered under this project should not be taken into account, since it was the target delivery of goods already sold in advance.
In both cases, the store or company makes a profit, but the inventory in the warehouse remains intact.
In fact, we are only interested in LIVE STOCK - this is the amount of goods that:
- came to the warehouse or was sold for the period under review (that is, any of its movements); if there was no movement (for example, elite cognac was not sold for a whole month), then it is necessary to enlarge the analysis period for this product;
- and also this is the quantity of goods for which there was no movement, but the goods were on the balance (including those with a negative balance).
If there was a zeroing of goods in the warehouse, then these days must be deleted from the turnover analysis.
3. All calculations on turnover must be carried out in purchase prices. The turnover is considered not at the selling price, but at the price of the purchased goods.
Formulas for calculating turnover
1. DAY TURNOVER - the number of days required to sell existing inventory (see formula 2).
Sometimes it is also called the average shelf life of goods in days. This way you can find out how many days it takes to sell an average inventory.
Example
The heading "Hand cream" is analyzed, as an example in Table. 2 shows data on sales and stocks for half a year.
Calculate the turnover in days (how many days we sell the average stock of goods). The average stock of cream is 328 pieces, the number of days on sale is 180, the sales volume for half a year was 1701 pieces.
Obdn = 328 pcs. (180 days / 1701 pieces = 34.71 days
The average supply of cream turns around in 34-35 days.
TABLE 2. Sales and inventory data for the "Hand cream" item
2. TURNOVER IN TIMES - how many revolutions does the product make per period (see formula 3).
The higher the company's inventory turnover, the more efficient its activities, the less the need for working capital and the more stable the financial position of the enterprise, all other things being equal.
Example
Let's calculate the turnover in turnover (how many times the stock is sold for six months) for the same cream.
1st option: Image = 180 days. / 34.71 = 5.19 times.
2nd option: Image = 1701 pcs. / 328 pcs. = 5.19 times.
The stock turns over an average of 5 times per six months.
3. PRODUCT INVENTORY LEVEL (UTZ) - an indicator that characterizes the supply of the store with stocks on a certain date, in other words, for how many days of trade (with the current turnover) this stock will last (see formula 4).
Example
How many days will our existing supply of cream last?
Utz = 243 pcs. (180 days / 1701 pieces = 25.71.
For 25–26 days.
You can calculate the turnover not in pieces or other units, but in rubles or another currency, that is, by cost. But the final data will still be correlated with each other (the difference will be only due to rounding of numbers) - see table. 3.
TABLE 3
What gives turnover?
The main purpose of inventory turnover analysis is to identify those goods for which the cycle rate "goods-money-goods" is minimal in order to decide on their future fate.
To illustrate, let's consider an example of the analysis of the turnover ratio of two goods - bread and cognac, which are part of the assortment of a grocery store (see Tables 4 and 5).
TABLE 4. Analysis of the turnover ratio of two goods
This table shows that bread and expensive cognac have completely different indicators - the turnover of bread is many times higher than cognac. But it is illegal to compare products from different product categories - such a comparison does not give us anything. Obviously, bread has one task in the store, while cognac has a completely different one, and it is possible that the store earns more from one bottle of cognac than from sales of bread in a week.
TABLE 5. Analysis of the turnover ratio of four products
Therefore, we will compare products within the category with each other - bread is comparable with other bread products (but not with cookies!), And cognac - with other elite alcoholic products (but not with beer!). Then we can draw conclusions about the turnover of a product within a category and compare it with other products with similar properties.
Comparing products within a category, we can conclude that tequila has a longer turnover period than the same brandy, and the turnover rate is lower, and that whiskey in the category of elite alcoholic beverages has the highest turnover, while vodka (despite the fact that its sales are twice as high as those of tequila) this indicator is lower, which, apparently, requires adjustment of the warehouse stock - it is possible that vodka should be imported more often, but in smaller batches.
In addition, it is important to track the dynamics of changes in turnover in turnover (Rev) - to compare with the previous period, with the same period last year: a decrease in turnover may indicate either a drop in demand, or an accumulation of poor quality goods or outdated samples.
The turnover itself does not mean anything - you need to track the dynamics of the change in the coefficient (Rev), taking into account the following factors:
- the coefficient decreases - the warehouse is overstocked;
- the coefficient is growing or very high (shelf life is less than one day) - work "from wheels", which is fraught with a lack of goods in the warehouse.
In conditions of constant shortages, the average value of the warehouse stock can be equal to zero - for example, if demand is growing all the time, but we do not have time to bring the goods and sell them "from the wheels". In this case, it makes no sense to calculate the turnover ratio in days - perhaps it should be calculated in hours or, conversely, in weeks.
If a company is forced to store in a warehouse goods of irregular demand, goods with a strongly pronounced seasonality, then achieving a high turnover is not an easy task. To ensure customer satisfaction, we will be forced to have a wide range of infrequently sold items, which will slow down the overall inventory turnover. Therefore, the calculation of turnover for all stocks in the company is incorrect. It will be correct to count by categories and by goods within categories (headings).
Also for the store, the conditions for the delivery of goods play an important role: if the purchase of goods is made using its own funds, then the turnover is very important and indicative; if on credit, then you invest your own funds to a lesser extent or do not invest at all, then the low turnover of goods is not critical - the main thing is that the loan repayment period does not exceed the turnover rate. If the goods are taken mainly on the terms of sale, then first of all it is necessary to proceed from the volume of storage facilities, and the turnover for such a store is the last indicator in importance.
Turnover and withdrawal
It is important not to confuse the two concepts - turnover and withdrawal.
TURNOVER - this is the number of turnovers of goods for the period.
LEAVAGE - an indicator that indicates how many days the goods leave the warehouse. If in the calculation we do not operate with an average TK, but calculate the turnover of one batch, then we are really talking about leaving.
Example
On March 1, a batch of 1000 pencils arrived at the warehouse. On March 31, there are no pencils left in the warehouse (0). Sales are 1000 pieces. It seems that the turnover is 1, that is, this stock turned around once a month. But it is necessary to understand that in this case we are talking about one batch and the time of its implementation. One batch does not turn around in a month, it "leaves".
If we calculate the average stock, it turns out that on average there were 500 pieces in stock per month.
1000 / ((1000 + 0) / 2) = 2, that is, it turns out that the turnover of the average stock (500 pieces) will be equal to two periods. That is, if we brought two batches of pencils of 500 pieces, then each batch would be sold in 15 days. In this case, it is incorrect to calculate the turnover, because we are talking about one batch and do not take into account the period when the pencils were sold to zero balance - perhaps this happened in the middle of the month.
Batch accounting is not needed to calculate the inventory turnover ratio. There is an inflow of goods and an outflow of goods. Given a period (for example, 1 month), we can calculate the average inventory for the period and divide the sales volume by that.
Turnover rate
Very often you can hear the question: "What are the turnover rates? What is the correct way?"
But companies always have the concept of "RETURN RATE" and each company has its own.
RATE OF TURNOVER - this is the number of days (or turnovers) for which, in the opinion of the company's management, a stock of goods must be sold in order for the trade to be considered successful.
Each industry has its own standards. Some companies have different standards for different product groups. So, for example, our trading company used the following rates (turns per year):
- building chemistry - 24;
- varnishes, paints - 12;
- plumbing - 12;
- facing panels - 10;
- rolled floor coverings - 8;
- ceramic tiles - 8.
In one of the chain supermarkets, the turnover rate for the non-food group is divided on the basis of ABC analysis: for goods A - 10 days, for goods of group B - 20 days, for C - 30. In this retail network, monthly turnover is included in the inventory indicator, and the commodity balance in the store is the sum of the turnover rate plus safety stock.
Also, some financial analysts use Western standards.
Example
“Usually, traders in industrial goods at Western enterprises have a turnover ratio of 6 if the profitability is 20–30%,” writes Dobronravin E. in the article “Turnover ratio and service level - indicators of inventory efficiency.” – If the profitability is 15%, the number of revolutions approximately 8. If the profitability is 40%, then a solid profit can be obtained with 3 rotations per year.However, as noted earlier, it does not follow that if 6 rotations are good, then 8 or 10 rotations are better.These data are indicative when planning summarizing indicators.
Henry Assel, in Marketing: Principles and Strategy, writes: "In order for businesses to operate at a profit, their inventory must turn 25 to 30 times a year."
An interesting method for calculating the turnover rate is offered by Dobronravin E. He uses a Western development that takes into account many variable factors: the frequency with which goods are ordered, transportation time, delivery reliability, minimum order sizes, the need to store certain volumes, etc.
What is the optimal number of inventory turnover that can be included in the plan of a particular enterprise? Charles Bodenstab analyzed a large number of companies using one of the SIC systems in inventory management. The results of the empirical study were summarized in formula 5.
f in the proposed formula is a coefficient that summarizes the effect of other factors affecting the theoretical number of revolutions. These factors are:
- the width of the assortment in storage, that is, the need to store slow-moving stocks for marketing purposes;
- larger than required purchases in order to obtain volume discounts;
- requirements for a minimum purchase lot from a supplier;
- supplier unreliability;
- economic order quantity (EOQ) policy factors;
- overstocking for promotion purposes (promotion of goods);
- use of delivery in two or more stages.
Example
The store has factors (they are indicated in Table 6) applied to different suppliers.
You can give several examples of how the turnover rate will look like with the applied formula (see Table 7).
TABLE 6. Shop factors for vendors
This means that if, on average, we import goods 3 twice a month (0.5) and we carry it for 1 month, despite the fact that some factors (perhaps the supplier is unreliable) are not ideal, then the turnover rate can be considered 9.52. And for product 5, which we rarely import (it takes a long time, and the influencing factors are very far from ideal), it is better to set a turnover rate of 1.67 and not demand too much from its sale.
TABLE 7. Calculation of the turnover rate
But the practice of Western companies is very different from Russian conditions - too much depends on logistics, purchase volumes and delivery times, supplier reliability, market growth and demand for goods. If all suppliers are local and the turnover is high, then the coefficients can reach 30-40 turnovers per year. If supplies are intermittent, the supplier is unreliable and, as often happens, demand fluctuates, then for a similar product in a distant region of Russia, the turnover will be 10-12 turnovers per year, and this is normal
Turnover rates will be higher for small enterprises working for the end consumer, and much less for enterprises producing group A products (means of production) due to the length of the production cycle.
Again, there is a danger of rough compliance: for example, you do not fit into the turnover ratio and start to reduce the safety stock. As a result, there are gaps in the warehouse, there is a shortage of goods and unsatisfied demand. Or you start to reduce the size of the order - as a result, the costs of ordering, transporting and processing goods increase. Turnover increases, but availability problems remain.
The norm is a general indicator, and one should react and take action as soon as some negative trend is detected: for example, inventory growth outpaces sales growth, and at the same time as sales growth, inventory turnover has decreased.
Then you need to evaluate all marketable goods within the category (perhaps some individual items are purchased in excess) and make informed decisions: look for new suppliers who can provide shorter delivery times, or stimulate sales for this type of product, or give it a priority place in hall, or train sellers to advise buyers on this particular product, or replace it with another more well-known brand, etc.
