How to determine the turnover of total capital

You will need
  • - balance sheet (form №1);
  • - Profit and loss account (form № 2).
Capital turnover is the rate at which assets pass through the various stages of the production process. It affects the solvency of the enterprise and its production potential. The high rate of circulation of capital ensures the growth of company profits
The turnover of total capital is characterized by the main indicators:
- turnover ratio;
- period of turnover.
The turnover ratio of total capital shows how many times during the period under review total assets are wrapped. Its low figure means that the volume of activity is insufficient for a given amount of assets. High value contributes to the successful attraction of additional investments for the expansion of production.
Calculate the turnover ratio according to the formula: К ob.к = (Revenue) / (Average balance currency for the period).
When determining the amount of revenue, include in its composition the total income from all activities. Calculate the average indicator of the currency of the balance as follows: add ½ the sum of the values ​​at the beginning and end of the period and the integer values ​​of intermediate periods, divide the resulting number by the number of analyzed reporting dates.
The turnover period of the aggregate capital of an enterprise reflects the average period of time during which one turnover of assets takes place, that is, their transformation from a material-material form into a monetary one. Calculate the duration of the turnover by dividing the number of days in the period under consideration by the capital turnover ratio.
A detailed analysis involves the calculation of the turnover indicators of individual components of capital: own and working capital, inventories and cash, receivables and payables. The general formula for turnover is: Kv = (Revenue) / (Average value of funds and their sources).
The general formula for the rate of turnover is as follows: T = D / K on, where D is the number of days in a period.
Calculating the duration of the turnover of individual elements of assets, calculate the duration of the operating cycle, adding up the results obtained for inventories, finished goods, work in progress and accounts receivable. The growth of this indicator over several periods means a decrease in business activity of the enterprise, a slowdown in capital turnover, and an increase in the need for additional financial resources.
Then determine the duration of the financial cycle: subtract from the value of the duration of the operating cycle the duration of the turnover of accounts payable. The decrease in the ratio indicates an increase in business activity of the company.
In the next step, calculate the sustainability of economic growth by the formula: To set. = (Net profit - Dividends) / (Equity).
The high value of this indicator indicates the growth and expansion of the enterprise.

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