Nargiza kasimova farkhod mukhamedov elkan harebov

Figure 6. The turnover of working capital of the enterprise 
 
The company must establish the duration of all types of cycles and the ratio 
between them. The financial cycle is especially important because it involves, as 
already mentioned, only own funds. The smaller the financial cycle, the less the 
need for own sources of financing. As follows from the formula, the financial 
cycle will decrease under the following conditions: 
- shortening the production cycle 
- reduction of the period of turnover of receivables 
- increase the period of turnover of accounts payable 
To shorten the production cycle, a reduction in the periods of inventory 
turnover, work in progress and finished products is required. This is possible 
provided that the optimal size of the order for raw materials and a batch of 
finished products is determined and controlled, and the production technology is 
improved. 
The turnover period of receivables (𝑇𝑇𝑃𝑃𝑅𝑅) is found by the formula: 
 
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𝑇𝑇𝑃𝑃𝑅𝑅 =
𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑣𝑣  × 𝐷𝐷,
 
where 𝑅𝑅𝑅𝑅 is average receivables for the analyzed period; 𝑅𝑅𝑅𝑅𝑣𝑣 is revenue from 
sales for the analyzed period; 𝐷𝐷 is the number of days in the period. 
The formula shows that the period of turnover of receivables may decrease 
with revenue growth and stabilization of the level of debt, as well as with a 
decrease in debt with a constant level of revenue. 
In its financial policy, an enterprise may stipulate the level of this ratio. In 
addition, it is necessary to determine the acceptable levels of doubtful and bad 
debts in the total amount of sales. The standards for such indicators have not 
been established in the economic system of our country, although this is done 
abroad. Each company should determine these standards based on the 
characteristics of the industry, the financial situation of its customers, payment 
terms, etc. A necessary condition for determining the agreed indicators is the 
constant receipt of information about the financial situation of clients and its 
changes, that is, the organization of work on maintaining a dossier for clients. 
The level of receivables depends on the forms and conditions of 
settlements. So, for customers who regularly delay payments for shipped 
products, you can enter a letter of credit form of payment. For neat customers, 
you can develop an incentive system of discounts. However, not every level of 
discounts is beneficial to the buyer. Managers should have discount offers for 
customers that consider the price index, losses from inflation, the possibility of 
alternative investments, etc. The provision of discounts is justified only when it 
leads to an increase in sales, profits, and liquidity of the enterprise. 
With the help of discounts, you can solve the problem of cash shortages. 
Sometimes an immediate cash inflow can be beneficial to the company, even if 
in the long term the result of the transaction is negative. 
Problems with receivables can be resolved by providing customers with a 
commercial loan, the principles, and conditions of which are established by the 
financial policy. 
So, it may be decided to grant a commercial loan only to prospective 
customers or when entering new important markets or only in emergency 
situations. A highly effective method of stimulating the sales department 
depending on the level of receivables and cash receipts for finished products. 
The issue of the need and conditions for the sale of receivables should be 
resolved. 
The turnover period of accounts payable (𝑇𝑇𝑃𝑃𝑅𝑅) is equal to: 
𝑇𝑇𝑃𝑃𝑅𝑅 =
𝑅𝑅𝑃𝑃
𝑎𝑎
𝐶𝐶 × 𝐷𝐷,
 
where 𝑅𝑅𝑃𝑃
𝑎𝑎
 is the average accounts payable in the analyzed period; 𝐶𝐶 is the cost 
of production in the analyzed period; D is the number of days in the period. 
 
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Criteria of profitability of the terms of the commercial loan of suppliers are 
determined in terms of the cost of debt servicing, as well as the terms and forms 
of payment. 
An acceptable level of correlation between receivables and payables should 
be justified. 
In the implementation of the financial cycle there are current financial 
needs of an operational nature (𝐶𝐶𝐹𝐹𝑁𝑁), determined by the formula: 
𝐶𝐶𝐹𝐹𝑁𝑁 = 𝑆𝑆𝑡𝑡 + 𝑅𝑅 − 𝑅𝑅𝑃𝑃, 
where 𝑆𝑆𝑡𝑡 is stocks of raw materials and finished products; 𝑅𝑅 is receivables; 𝑅𝑅𝑃𝑃 
is accounts payable. 
The total current financial needs of the enterprise (𝑇𝑇𝐹𝐹𝐶𝐶) are calculated by 
the formula: 
𝑇𝑇𝐹𝐹𝐶𝐶 =  𝑇𝑇𝐹𝐹𝑃𝑃
𝑜𝑜𝑝𝑝
+ 𝑇𝑇𝐹𝐹𝑃𝑃
𝑛𝑛𝑜𝑜𝑛𝑛 −𝑜𝑜𝑝𝑝
, 
where 𝑇𝑇𝐹𝐹𝑃𝑃
𝑛𝑛𝑜𝑜𝑛𝑛 −𝑜𝑜𝑝𝑝
 is current financial needs of a non-operating nature. 
In expanded form, this formula has the form: 
𝑇𝑇𝐹𝐹𝐶𝐶  =  𝑆𝑆𝑡𝑡 + 𝑅𝑅 − 𝑅𝑅𝑃𝑃 +  𝐹𝐹𝑅𝑅
𝑠𝑠
− 𝐿𝐿
𝑠𝑠
, 
where 𝐹𝐹𝑅𝑅
𝑠𝑠
 is short-term financial investments and other assets except cash; 𝐿𝐿
𝑠𝑠
 is 
short-term loan received by an enterprise, 
or 
𝑇𝑇𝐹𝐹𝐶𝐶  = 𝑅𝑅𝑂𝑂𝐶𝐶 − 𝐶𝐶𝑎𝑎𝑠𝑠ℎ, 
where 𝑅𝑅𝑂𝑂𝐶𝐶 is own working capital (current liabilities in excess of the need for 
current assets); 𝐶𝐶𝑎𝑎𝑠𝑠ℎ is cash of the enterprise. 
From this formula it follows that free cash appears at the enterprise if own 
working capital is greater than current financial needs. 
In economic practice, there are several methods of working capital 
management. 
1. Inventory management is the rationalization of stocks of manufactured 
goods,  work in progress, raw materials and other objects of activity by 
enterprises in order to reduce storage costs while ensuring the level of service 
and uninterrupted operation of the enterprise. Usually normalized items of 
working capital, such as working capital assets and finished products. 
The effective use of working capital largely depends on the correct 
determination of the need for them. Rationing of working capital is carried out 
at each enterprise in strict accordance with cost estimates for production and 
production needs and a business plan that reflects all aspects of commercial 
activity. Thus, the interconnection of production and financial indicators is 
ensured. 
Rationing of working capital is carried out in accordance with the basic 
principles: 
 
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a) the need for own working capital for each enterprise is determined in the 
preparation of the financial plan. Thus, the standard value is not a constant 
value. The size of own working capital depends on the volume of production, 
conditions of supply and marketing, the range of products, applied forms of 
payment 
b) own working capital should cover the needs of not only the main, but 
also auxiliary and auxiliary production, housing and communal services and 
other farms that are not related to the main activity of  the enterprise, capital 
repairs, which are carried out on their own 
c) the rationing of working capital is carried out in monetary terms. The 
basis for determining the need for them is an estimate of the costs of 
manufacturing products (works, services) for the planning period. At the same 
time, for enterprises with a non-seasonal nature of production, it is advisable to 
take the fourth quarter as the basis of calculations, in which the volume of 
production is, as a rule, the largest in the annual program; for enterprises with a 
seasonal nature of production - data for the quarter with the smallest volume of 
production, since the seasonal need for working capital is provided by short-
term loans from banks 
d) to determine the standard, the average daily consumption of normalized 
elements in monetary terms is considered. For inventories, the average daily 
consumption is calculated according to the corresponding article in the estimate 
of production costs; for work in progress —  based on the cost of gross or 
marketable products; annual production —  based on the production cost of 
marketable products 
The norm of working capital 𝑁𝑁𝑂𝑂𝐶𝐶 is calculated as follows: 
𝑁𝑁𝑂𝑂𝐶𝐶 = 𝐷𝐷
𝑝𝑝𝑐𝑐
× 𝐾𝐾
𝑙𝑙𝑐𝑐
, 
where 𝐷𝐷
𝑝𝑝𝑐𝑐
 is  the duration of the production cycle, calculated according to the 
production schedule, days. It includes the time from the moment of the first 
technological operation to the transfer of finished products to the warehouse; 𝐾𝐾
𝑙𝑙𝑐𝑐
 
is coefficient of increase in costs. 
Calculations of the standard by direct counting are carried out if the 
company has not calculated it before. The adjustment of the standard can be 
carried out by two methods: analytical and coefficient. 
The essence of the analytical method is that all standardized working 
capital is divided into two groups: 
- Articles  of working capital, depending on changes in the volume of 
production 
- Articles of working capital, not depending on changes in the volume of 
production 
Inventory management refers to monitoring their condition and making 
managerial decisions aimed at minimizing the costs of maintaining the inventory 
necessary to fulfill the production plan and sales of products. 
 
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Without controlling inventories at the enterprise, there is a risk of an 
increase in the costs of a possible shutdown of the production process due to a 
temporary shortage of essential components to produce raw materials, 
components. 
2. The second method of working capital management can be attributed to 
the management of receivables, since in the process of financial and economic 
activity the company  constantly has a need to make settlements with its 
counterparties, budget, and tax authorities. When shipping products or providing 
services, an enterprise, as a rule, does not receive money in payment 
immediately, i.e. in fact, it lends to its customers. Therefore, during the period 
from the moment of shipment of the product to the moment of receipt of 
payment, the funds of the enterprise are diverted in the form of receivables. 
The stages of receivables management include: 
- accounting of debtors, establishing the nature of receivables 
- inventory of receivables 
- analysis of receivables by type of product 
- assessment of the probability of bad debts and the real value of 
receivables 
- selection of receivables management methods 
At each enterprise it is necessary to maintain a complete account of 
debtors, indicating the nature of the debt (Table 12). 
Table 12.