A large proportion of total current assets and increasing will affect the efficiency of working capital use and not enough capital to ensure the business process. Therefore, it is necessary to have optimal measures so that these receivables account for a reasonable proportion of total current assets.
Inventory: Includes the value of unfinished products, finished goods in stock or in transit or goods consigned for sale by the enterprise at the time of reporting. For trading enterprises, inventory is goods and raw materials, finished products for manufacturing enterprises. If the inventory is in large quantities, it is not good when the receivables are small, on the contrary, if the inventory is in small quantities and the receivables increase, it is not necessarily profitable for the enterprise because the credit sales increase, the enterprise is being capital occupied. On the other hand, it is necessary to consider whether the proportion of each type of goods in the total inventory is reasonable or not to have an adjustment plan. Therefore, to ensure that the production process of the enterprise is carried out continuously, avoiding capital stagnation, the enterprise must calculate a reasonable reserve level.
Other current assets are assets owned by the enterprise, with a period of use and capital recovery within a year or a business cycle but not included in the above items. Other current assets include: prepaid expenses, expenses awaiting transfer of assets pending settlement, mortgages, short-term deposits. In addition, current assets also include unfinished or completed career expenses awaiting settlement. Career expenses are expenses of the enterprise for work and activities covered by funds allocated by the state budget at a higher level.
1.2.2.3 Based on the role of working capital
- Working capital in the production reserve process: includes capital for main raw materials, purchased semi-finished products, capital for auxiliary materials, capital for fuel, capital for spare parts.
- Working capital is in the direct production process: capital for products in production, capital for semi-finished products, capital for expenses waiting to be allocated.
- Working capital in the circulation process: finished product capital, purchased goods capital, exported goods capital purchased by banks, monetary capital, payment capital.
Working capital of enterprises based on the source of formation can be divided into: equity capital and borrowed capital. This classification creates conditions for enterprises to choose the optimal capital mobilization object to always have a stable amount of capital to meet production and business needs. The fluctuation of borrowed capital compared to total capital or equity capital compared to total capital is the basis for managers to choose and decide on investment plans.
1.2.2.4 Based on working capital management measures
Standard working capital: is the working capital that is required and regularly required for the production and business activities of the enterprise, including: reserve capital in production, finished product capital. Standard working capital is the basis for capital management to ensure reasonable arrangement of working capital in production and business, determining the relationship between enterprises and the State or banks in capital mobilization.
Unscheduled working capital: is the part of working capital that directly serves the finished product circulation stage, including: capital in payment, capital in cash, etc.
Working capital
Working capital production
Working capital
Product value
incomplete
Expense
waiting for division
supplement
Capital
product
Capital equal to
money
Capital in
pay
Standard working capital
Unrestricted working capital
Diagram 1.1: Diagram of working capital structure in the enterprise
Working capital structure is the proportional relationship between the components of working capital in the total working capital. In different enterprises, the working capital structure is
different movements. The study of working capital structure shows the distribution of working capital and the proportion of each capital item in the circulation stages to determine the focus of working capital management and find all measures to improve the efficiency of capital use in each specific condition.
1.3 Structure of working capital and factors affecting the structure of working capital
Analyzing the structure of working capital according to different criteria can help businesses better understand the amount of working capital that they are using and managing. From there, they can correctly identify key points and more effective management measures suitable for the specific conditions of each business. There are many factors that affect the structure of working capital, and they are often grouped into 3 groups:
Production factors: Enterprises with different production scales, production characteristics, production process technology levels, and product complexity will have different proportions of working capital at each stage of storage and production.
Supply and consumption factors: In production and business, enterprises often need many types of materials from many different suppliers. In general, the closer the supplier of raw materials is, the less reserve capital is required. If the supply is more accurate compared to the plan and the delivery date, in terms of quantity and specifications of raw materials, etc., the less reserve raw materials will be.
Payment factors: Using different payment methods will result in different capital occupations during the payment process. Therefore, choosing a reasonable payment method, closely following and promptly resolving payment procedure issues, and urging compliance with payment laws will have a certain impact on the increase or decrease of the portion of working capital occupied at this stage.
The structure of working capital also depends on the seasonal nature of production, especially in agriculture which is affected by different soil and weather conditions, and this structure also depends on the level of organization and management.
1.4 The need to improve the efficiency of working capital use
In commercial enterprises, working capital often accounts for a high proportion of total capital, which is a favorable condition to improve the efficiency of working capital use.
Therefore, along with determining capital, the ability to use working capital is of particular importance to commercial enterprises. Only when managing and using well the business capital in general and working capital in particular, can the enterprise expand its capital scale, creating prestige in the market. That means creating high-quality products and services at low prices but bringing profits to the enterprise and also being the basis for expanding production and business.
For commercial enterprises, it is necessary to find ways to solve well the aspects of working capital, strengthen management and improve the efficiency of use, ensure regular production and business, continuously use working capital with fast turnover, reduce risks and use capital with high efficiency, it requires business operators to make the right decisions. Therefore, enterprises must come up with reasonable ways to provide enough working capital for production and business activities.
Because of operating in a market mechanism, enterprises must cover their own finances, generate income to cover expenses and make a profit. Therefore, enterprises must improve the efficiency of using working capital to recover capital, reduce costs, and increase profits.
Effective use of working capital also means mobilizing capital in the financial market, expanding and developing business activities, which really becomes a decisive condition for the success of the enterprise.
1.5 Basic content of capital management in enterprises
1.5.1 Determine the minimum regular working capital requirement
Determining this need is aimed at ensuring sufficient minimum working capital for the production and business process to be carried out continuously, avoiding capital stagnation and vice versa, if too much, it will cause many difficulties for the business.
negative impact on material purchasing activities, not meeting production and business needs.
Indirect method to determine working capital needs: the content of this method is based on empirical statistics to determine capital needs, divided into 2 cases:
- First: based on practical experience of businesses of the same type in the industry to determine the working capital needs of the business.
- Second: based on the actual situation of working capital use in the previous period of the enterprise to determine the working capital needs for the next period, at the same time considering the situation of changes in production and business scale and improvements in the organization of working capital use to determine the total regular labor capital needs required. This method has the advantage of being simple.
1.5.2 Ensuring working capital
Ensuring working capital is an important step that determines the existence and development of each enterprise. Depending on the specific characteristics, each enterprise has a reasonable method of ensuring working capital. Those measures are:
- Periodically conduct inventory, control, and re-evaluate all goods, cash capital, and payment capital to determine the current working capital of the enterprise at its current value.
- Goods and materials that have been stored for a long time and cannot be used due to poor or lost quality must be handled and promptly compensated.
- For businesses with prolonged losses, it is necessary to find measures to eliminate losses in business.
- To ensure working capital in inflationary conditions, when distributing profits for accumulation and consumption purposes, enterprises must set aside a portion of profits to compensate for capital loss due to inflation and must be given top priority.
1.5.3 Mobility management and preservation
Working capital management is an essential part of financial management. Proper working capital management helps ensure efficient and cost-effective use of working capital.
savings, thereby leading to reduced production costs and lower product prices. Therefore, to manage and preserve working capital, it is necessary to pay attention to the following contents:
- Determine the minimum working capital required during the business period, ensure sufficient working capital for the business process to be carried out regularly and continuously, avoid business interruption and capital waste.
- Exploiting capital sources inside and outside the enterprise well.
- Having solutions to preserve and develop working capital, which means preserving the actual value of capital, preserving the purchasing power of capital from decreasing compared to the initial level when investing in current assets. To do the above, in addition to using measures such as promoting product consumption, releasing inventory, recovering bad debts, businesses regularly analyze the situation of using working capital through indicators: working capital turnover, working capital efficiency, debt ratio... Thanks to these indicators, measures can be adjusted to increase the efficiency of using working capital to increase profitability.
1.5.4 Indicators for evaluating the efficiency of working capital use
The efficiency of capital use of an enterprise is the relationship between the output and input of the business process or specifically the relationship between the entire business results and the entire costs of that business process. Including:
1. Working capital turnover rate.
The rational and economical use of working capital is first expressed in the speed of the enterprise's working capital turnover. The faster the working capital turnover, the higher the efficiency of working capital usage and vice versa.
Working capital turnover rate can be calculated by two indicators: number of turnovers and capital turnover period:
*The number of turnovers (capital turnovers) reflects the number of capital turnovers performed in a certain period (usually 1 year). The number of turnovers is calculated according to the following formula:
M
L =
VLĐ
In there:
VLDbq: Average VLD in the period VLĐ | = | Beginning working capital + Ending working capital |
2 |
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L: Number of turnovers of working capital in the period. M: Total turnover in the period. Working capital: Average working capital in the period.
* Working capital turnover period: This indicator shows the average time required to complete one working capital turnover cycle.
360
K = L
K | = | VLĐbq x 360 |
M |
Good
In which K: Working capital turnover period. The faster the working capital turnover, the shorter the working capital turnover period and proves that working capital is used effectively.
2. Working capital efficiency (Hq)
Hq | = | Revenue realized during the period |
Average working capital during the period |
This indicator shows how much revenue one dong of Working Capital generates.
Revenue realized during the period is the sales of all goods and products consumed during the period, regardless of whether money has been collected or not. Working capital content (HL). Working capital content, also known as working capital level, is the amount of working capital needed to achieve one unit of revenue, which is the inverse of the working capital efficiency index calculated by the following formula:
HL | = | Average working capital during the period |
Total operating revenue during |
HL: VLĐ content
3. Savings in material costs due to increased circulation speed.
The level of saving in working capital due to increasing the speed of capital turnover is expressed by two indicators: absolute saving level and relative saving level.
- The absolute savings are due to the increase in capital turnover, so the enterprise can save some working capital to use for other work. In other words, with the unchanged turnover rate (or greater than 14 compared to the report), due to the increase in turnover, the enterprise needs less capital. The calculation formula is as follows:
Vtktd= | M 0 | = | K1 | - | VLĐ 0 | = | VLĐ 1 | - | VLĐ 0 |
360 |
In there:
Vtktd: Absolutely economical VLĐ.
VLĐ0, VLĐ1: Average capital turnover of reporting period, planning period. M0: Total capital turnover of reporting year.
K1: Capital turnover period of the planned year. The relative savings are due to the fact that increasing the capital turnover rate of the enterprise can increase the total capital turnover without increasing or insignificantly increasing the scale of working capital.
4. Working capital turnover
D VLĐ | = | Profit before (after) tax |
Average working capital in the period |
This indicator shows how much profit (after) before tax is generated by one dong of working capital in the period. The calculation formula is as follows:
5. Indicators reflecting the efficiency of inventory and receivables use