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Economy of the enterprise - Pokropivny SF

7.2. Efficiency of use

Current assets of diversified enterprises constitute a significant part of their material and monetary assets. Therefore, rational and economical use of circulating assets of business entities is of no small importance. To assess the efficiency of using circulating assets of manufacturing enterprises, certain indicators are used, and to increase efficiency, the corresponding specific methods (Figure 7.2).

Fig. 7.2. Indicators and ways to improve the efficiency of the use of current assets of the enterprise

Efficiency of using current assets is characterized by the speed of their turnover - the so-called turnover. Accelerating the turnover of funds contributes to: first, an increase in the volume of production for each unit of the current costs of the enterprise and, secondly, the release of part of the funds, and thanks to this, the creation of additional reserves for expanding production.

The turnover ratio (the number of revolutions) is calculated by dividing the value of sold products at current wholesale prices for a certain period by the average balance of current assets for the same period. The index, the inverse of the coefficient of turnover, is usually called the load factor . It shows how many current assets (in fractions of a unit) account for each monetary unit of sales. The duration of one turnover in days (or the turnover rate) of circulating assets is defined as the ratio of the number of days in the accounting period (for the quarter - 90-360 days) and the turnover ratio for the same period. To measure the economic efficiency of the use of current assets, the profitability index , calculated as the ratio of the enterprise's profit to the amount of its working capital, can be applied.

Due to the acceleration of the turnover of financial (monetary) funds, the need for them decreases, and the process of releasing these funds from the turnover occurs. Distinguish absolute (decrease in the requirement for working capital) and relative (the realization of a larger number of products with a fixed amount of money due to the improvement of their use) the release of cash from circulation.

Among the ways to increase the efficiency of using current assets, one of the most important is the optimization of production reserves. It is with optimization that the largest reserves of reserves reduction at the enterprises are connected, especially with material-intensive production. Reducing the duration of the production cycle at such enterprises for only one day can reduce the amount of work in progress by more than 2 million UAH. If, however, to accelerate the sale of products also for one day, the possible release of working capital will be approximately 1/3 of the volume of leftovers in the warehouses of enterprises.

Questions for self-study in depth

1. Elemental composition of working capital of the enterprise (organization).

2. Scientific validity of the division of working capital into normalized and non-standardizable.

3. Methods of rationing current assets at enterprises (in organizations).

4. Determination of working capital standards for individual structural elements.

5. The essence and methodology of determining the coefficient of increase in costs (production costs incomplete production).

6. Key indicators for assessing the efficiency of using current assets.

7. The level of providing enterprises (organizations) with the necessary working capital in today's business environment.

8. Ways to increase the efficiency of the use of working capital at enterprises of various sectors of the national economy of Ukraine.