Own working capital

Own working capital is the company's resources, which it invests in the current process of a single production cycle. The material, labor, natural and financial assets of the enterprise serve to express certain objective and subjective relationships that develop in parallel with the development of business.

Own working capital takes a direct part in the emergence of a new value, performing functioning in the processes of circulation of the aggregate capital of the organization. Its ratio to the value of the indicator of the main production capacities has a direct effect on the amount of income received from the sale of the product. Turnover and non-current assets are traded during production processes at different rates. The company's material, labor and financial resources have a shorter lead time. That is why a larger percentage of the current assets in the total amount of capital reduces the total time required to complete the technological cycles. This, in turn, contributes to the growth of new value, that is, profit.

In the conditions of a market economy, the circulating capital of business entities is a single organic complex that participates in the general circulation of funds. Its main component is financial resources that are invested in the company's holdings and circulation funds. Their presence is a necessary condition for the functioning of the processes of production and marketing of goods.

Own working capital of any enterprise makes a circuit, which is continuous. Funds in the form of company resources move from the sector of circulation to the production sphere, and then back. Passing consistently these three phases, current assets change their real-natural form.

The first stage is characterized by the transfer of financial resources, which relate to the sphere of circulation, into the warehouse stocks, that is, to the production cycle sector. The second phase of the working capital movement is characterized by the transformation of existing resources into semi-finished products, work in progress and finished products. The third stage of the circuit refers to the realization of the released goods. At this stage, its own working capital again takes the form of a monetary equivalent.

Sources of formation of the company's assets are divided into two types: own and attracted. The first type of capital plays the leading role in the company's commercial activity. It is the organization's own resources that ensure its financial sustainability, as well as the ability to conduct independent economic activities. If the enterprise has passed the privatization process, then all the resources available to it are at its full disposal. Companies are given the right to sell and transfer them to other legal entities, as well as citizens. Under the management's decision, the company's own resources can be leased out, etc. The attracted financial resources, which are bank loans, contribute to the additional need for the company in the funds.

Own working capital, the formula for calculating which is the difference between the amount of debtors' debts and the amount of inventory with the indicator of accounts payable (it does not include loans and short-term loans), is analyzed when comparing these values for different reporting periods. The growth of this figure indicates an increase in the creditworthiness and liquidity of the firm.